The View From 1776

Latest Report: Tune in for Socialism in Action on Home Court

Socialism is doing poorly in its birthplace.  Even with the home-court advantage of cheering, believing fans in the stands, the European Union’s vaunted intellectual planners are losing the game.

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The July 22nd edition of the Wall Street Journal carries an article by G. Thomas Sims entitled “Europe Sees Limits on Growth: Structural Problems Pose a Risk Of Inflationary Pressures.”

The European Central Bank estimates that the EU can sustain non-inflationary growth of 2.0% to 2.5% per annum.  That growth rate is 38% to 50% below the U.S. growth rate.

Even that low EU growth rate is disputed by international bankers, who doubt that the EU can grow much faster than 1.4% to 2.0% per annum without igniting dangerous inflation.

So, what’s the big deal?  Why is this noteworthy?

The answer is that the EU’s two biggest economies, France and Germany, can’t meet their own self-imposed budgetary standards of inflation and deficit ratios at such low growth rates.  At a time when outlays for welfare-state benefits are surging, business is sagging and tax revenues are lagging.  But, if these economies can’t grow fast enough to cover the welfare-benefit shortfalls without serious inflation, France and Germany would seem to have painted themselves into a corner.

Europeans attribute this dilemma to “structural problems.”  But, as we have seen in examining liberal-socialism’s economic “values” in recent postings, structural problems are supposed to be the strong point of socialism.  It’s the ignorant and superstitious Christian capitalists who “don’t get it.”  Liberals are the ones who know how to create social justice and a heaven-on-earth plenty for everyone; Big Daddy will give each and every one of you whatever you need, whether you work or not.

And how is Big Daddy to do this?  Precisely because, in liberal-socialist theory, only liberals “care” about the people.  Christian capitalists are heartless, selfish, power-hungry oppressors.  Put matters under the control of intellectual planners and social-engineering bureaucrats, and economic activity will then be run efficiently and effectively.

Why then is there a Grand-Canyon-size gap between promises and performance of the EU’s socialist economies?

EU Central bankers and international bankers finger the productivity growth rate, that is, the rate of increase in output of goods and services per labor hour.  The growth rate in labor productivity dropped from 1.9% in the 1980s to 0.9% last year.  Both rates are well below the productivity growth rate in the United States.

The thing to be noted is that productivity doesn’t increase because workers work harder or become more skilled.  Productivity increases because businesses experiment with new technologies and invest very large sums in new types of production equipment and new factory designs.

BUT, businesses have the incentive, and the necessary investment funds, to do this sort of thing only when they operate profitably.  The simple fact is that European businesses can’t make enough profit operating in the EU to invest in new technologies to raise productivity.

Regulatory socialism in the EU, dominated by giant labor unions, is a stifling cocoon of restrictions and requirements.  Poor workers can’t be fired.  Unprofitable plants can’t be closed.  New investments must be vetted at multiple regulatory levels.  Every expansion move is subject to challenge by the EU’s anti-trust regulators.  Large “national champion” companies, no longer able to compete in international markets, are kept afloat with government subsidies and anti-trust regulations to keep competitors out of their markets.

The bottom line is that, if new plants are to be built to reduce the EU’s high unemployment rates, they generally must rely, not on internally generated corporate profits, but on socialist government funding.  Without the tax revenues that should come from growth of economic activity, socialist governments have to resort to deficit financing, which by definition is inflation.

If you want to foresee the economic future of the United States, just watch the EU.  Year by year, American liberals’ social-justice campaigns for welfare-state encrustations on the economy gain more adherents, as our educational system turns out inexperienced young students who firmly believe in the religion of socialism.  Those students have been taught that every citizen and every illegal immigrant has a Constitutional right to free education, health care, housing, and a Federally-provided job.

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