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Sunday, June 17, 2012

France, The Euro and Beyond

I have been fascinated by the impact of some of the recent events which have rocked the world economy. Of course the first is the reaction by the Greeks to their failed socialist economy which can only be described as denial. The denial being that socialism is a viable governmental form when the costs outstrip the revenues. Their solution is to blame the Germans, blame capitalism, blame the banks, blame anyone and everyone except that person they see in the mirror. So they threw out the government and their austerity program and are now happily returning to their old ways without any idea whatsoever of how to pay for anything. Like all socialists they seem to believe that the “government” will pay for everything by taxing the rich. Of course all of the rich in Greece left a long time ago and when they joined the Euro-zone they gave up their control of their currency, this was a small point which they ignored in their haste to expand their Club Med life style. Now we see the same plan developing in France – that is a total denial that socialism doesn’t work. The French refuse to sacrifice anything to austerity. They feel they are being exploited by being expected to work more than a 35 hour work week and to retire at 62 rather than 60. They know that capitalism is evil and socialism guarantees that the government will always be there for them. Of course they are a little vague regarding where the government gets the money to pay for their benefits other than from the “rich” meaning companies because any individual with any substantial income has already moved his assets out of the country. Furthermore, the socialist government has made it so difficult to lay anyone off that no business will hire new employees. Instead any new jobs are being sent offshore where it is easier to control the staffing. The current thinking in France is that socialism provides for everyone assuring everyone an equitable share of the wealth. Anyone who doesn’t grasp the benefits of socialism must be selfish and greedy, and this brings us to the Euro. Money is an abstraction whose only value is what we collectively give it and the ability of the issuing government to ensure that value, so the dollar, the pound, the yen, and other currencies are monetary instruments guaranteed by their governments but not so the Euro. The Euro is an artificial currency with no specific government guaranteeing it and no specific European government can print new Euros – hence the problems in Greece, Italy, Portugal, and throughout most of the Euro-zone to a greater or lesser extent. The Euro Zone is dominated by socialist governments whose consistent policies have been oriented toward maximum employment with the least amount of work and the most generous benefits. However, the party is ending because none of the Euro-zone countries can sustain these benefits based on their revenues which mean they must be reduced. These austerity programs are not popular but if they are not implemented the Euro-zone can collapse France is the most recent country to refuse to accept these austerity driven reductions in benefits. France was one of the driving forces behind the creation of the Euro-zone thinking that they would be the dominant force. This turned out to be a gross miscalculation because their socialist policies focus on employment and not on productivity. . The unintended result ironically has been higher unemployment as companies refuse to hire new people unless forced to. The wages are inflated relative to the output so these companies look overseas for growth which results in a double strike at home—higher unemployment means less tax revenue and higher unemployment costs. The government expands as new government jobs are created and with these jobs comes greater bureaucracy and with that bureaucracy comes lower productivity and an incentive for employers and investors to move overseas. Today the Greeks are voting to decide whether to continue their Club Med economy or to adopt some measures that would keep them in the Euro-zone. Either way the party has ended because the piper must be paid. A return to the Drachma will certainly cause rampant inflation which will create serious problems but staying with the Euro will force serious austerity measures which will effectively demonstrate that socialism cannot be sustained over the long term. Will the French get the message? Will the socialists in Europe get the message? Only time will tell.

4 comments:

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Rikki-Tikki-Tavi said...

Royce,

As always, I learned a great deal from this article.

Thomas said...

What we call democracy in the United States is but a curious concoction of Democracy,
Republicanism, Capitalism, and...Socialism. The fact of the matter is most civilized nations in the western hemisphere employ some degree of socialism, which I suspect stems from our Judeo-Christian heritage. I can never understand why people rail against the tenets of socialism. Capitalism, while it too has its benefits, has eroded the moral and ethical fiber of this country. The sensational and maleficent activity of the financial sector is devastating not only this country but others as well, all because they want the unfettered and unregulated access to "free markets".

I think America works, if you can call it that, because of the curious concoction mentioned above, of which socialism and capitalism, is a part.

Royce said...

An interesting point Thomas makes but not necessarily accurate. Socialism saps the energy from society by creating a feeling of dependence. The objective of socialism is employment not efficiency or profit and the current problems in Socialist Europe vividly illustrate the failure of socialism. Lyndon Johnson's War on Poverty and other wealth redistributing schemes have virtually destroyed the black community and have created a huge underclass. Socialism and wealth redistribution do not work and the blame lies not with the business community but within the political arena.