Friday, June 6, 2014

Draghi Dreams While the US Fiddles

The European Central Bank (the ECB) announced yesterday a policy that essentially loans money to banks at a negative interest rate.  That's right!  They pay banks to take their money.  Why would they do this? (A better question is, perhaps, why is there an ECB?   There is not a shred of evidence that the ECB, or any other central bank since the Bank of England, has had a favorable impact upon their own domestic economy).

What the ECB is up to, of course, is one more bureaucratic effort to get an economy going in a land where free markets are almost illegal.  So many completely voluntary economic transactions in Europe are either illegal, absurdly regulated, or taxed beyond reason, that the free market struggles for its very existence.  So, now, borrowing rates are lower.  So what?  Borrowing rates are not the problem, so Mario Draghi of the ECB is just puffing smoke....once again.

In the US, the Michigan Republican Party has seen fit to pass an increase in the minimum wage and index it to inflation.  Michigan's Republican Governor Rick Snyder signed this atrocious legislation and praised it.  That simply adds to the list of voluntary transactions that are now illegal in Michigan.  Does this give you a hint as to why the Republican party is always and forever the minority party in the US. 

The national Republicans brought us ruinous social security and medicare expansions in the 1970s (remember Dick Nixon!), the ADA in the 1990s (remember Bob Dole) and the prescription drug bill in the early 2000s (remember George Bush).   In the US, it is a race to see which party can add more regulations, more income and wealth transfers, more taxes, and more restrictions on voluntary transactions.  I'm not sure who's winning.

Free markets currently have no defenders -- none in Europe and few in the US.  This means no economic growth.  The absence of incentives translates into stagnant economies. The stock market will figure this out in time.

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