Friday, January 9, 2015

Worry About the Wrong Things

The financial media is constantly abuzz about fears of deflation and/or inflation -- sometimes both at the same time.  Can it really matter whether the value of the currency is going up slightly or going down slightly? 

The current concern about Europe is the fear of deflation.  This is surprising since deflation has historically never impeded economic growth, though recovering from bouts of inflation provides many historical examples of economic trouble.  Why the fear of deflation?  How can it possibly matter?

The real problem in Europe is over regulation.  This shows up in labor laws, taxes, business regulation.  The free market has been strangled in Europe.  Whether there is 2 percent inflation or minus 1 percent inflation is totally irrelevant to the fate of Europe.  So, why the concern?

Because no one wants to face up to the fact that politically popular laws are destroying the economic prosperity of Europe.  That it is basically illegal to fire anyone in most of Europe means no one wants to hire anyone -- the level of inflation or deflation does not factor into the equation -- at all.

Neither Draghi or Merkel or any other political figure can save Europe from economic stagnation and possibly economic collapse. Only the return of free markets can rescue Europe and that is not in prospect.

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