Friday, August 10, 2012

Debt Isn't The Only Problem

Even if there was zero sovereign debt in Europe, Europe's economic troubles would not be over.  Unemployment would still be high and the Euro-economy would still be mired in stagnation.  It is very hard to start a business in Europe and hiring workers is just plain stupid.  Since you cannot legally fire employees in most countries in Europe (as a practical matter), there will always be very, very high unemployment across the European plain.  Unemployment is a way of life in Europe and is becoming a way of life in the United States for pretty much the same reason.

It is very expensive in Europe and in the US to hire an employee even if the employee were willing to return every dime of their take home pay back to the employer.  The mandated costs and potential litigation make an employee, especially those of relatively low income, uneconomic.  This fact will be a persistent and continual drain on the economy of the US and Europe.  The antidote for this, according to most politicians, is bigger government which further sucks the life out of free markets and makes the body politic more and more beholden to government and less interested in promoting free enterprise.  What you end up with is modern day Greece. 

Few Greeks today believe in free enterprise.  Instead most Greeks believe that somehow magically by taxing the rich they can live a life of leisure with high per capita income and little or no work effort.  Why not? It has worked that way for the last two generations.   If only the rich would pay higher taxes!  So, the Greeks vote for increasingly polarized political parties of the far left and far right.  Either a neo-nazi or neo-communist regime is likely the political future of Greece.  Democracy hasn't much of a shot because it cannot deliver an economy that works.  So voters look for someone else who can deliver the good life and there are plenty out there who claim that they can do just that.

It is very difficult for free markets to survive in an open society.  People see problems and they want to fix them.  The fix is always bigger government, more regulations, less freedom.  Eventually, free enterprise is simply overwhelmed and economic stagnation takes over.  That's where we are.

So, debt is one thing but by no means the biggest thing.  People go bankrupt and live to rise again and so do countries.  But snuffing out hope for the future through big government, through excessive regulation and taxation can keep a country from returning to true prosperity.  That's where we are.  If all the US and Europe suffered from was excessive debt, then the future would be bright indeed.  Unfortunately overwhelming sovereign debt is not even remotely the biggest issue that is bedeviling the economies of the western world.

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