Friday, February 27, 2015

Podemus on the Rise

You might well ask: "Who is Podemus?"

Podemus is a far left political party in Spain whose hero is the late Hugo Chavez, the architect of political disaster in modern Venezuela.  Podemus is on its way to power, following a similar rise of the Greek far left party that now controls the Greek parliament.  The so-called center-left and center-right parties of Europe are steadily losing ground as communist and fascist parties capture the attention of the electorate.  Why?

The centrist parties all believe in big government and somehow think that big government is consistent with economic growth, "fair" economic outcomes, and personal liberty.  In fact, none of these outcomes are consistent with big government and it is only a matter of time before big government obliterates all three.  Once centrist parties are discredited, witness the modern day Eurozone, the extremists take over -- see modern day Venezuela.

Only free markets can provide the troika of economic growth, "fair" outcomes, and personal liberty.  Those who dispute this rely mainly on the argument that they personally know better what other people should be doing and that freedom of choice is an insignificant right.  In fact, freedom of choice is by far the most important right that a free people can have.  Eliminating freedom of choice, Obamacare is the most recent American example, leads to corruption, economic waste and unfair outcomes.

Watch Europe as the extremists begin to take over in country after country setting the stage for a potential rerun of twentieth century antagonisms.  The welfare state is failing, as Margaret Thatcher predicted, as the welfare state "eventually runs out of other people's money."

Wednesday, February 25, 2015

All Show and No Go

From Athens to Berlin to Washington DC, what passes for economic policy is conversation lacking substance.

Greek politicians were recently elected by promising to walk away from the economic reforms required under the European Union bailout.  Listening to both sides suggests that neither is listening to the other.  There is no real agreement between Greek officials and the Troika other than to "extend and pretend." Two years from now, the Greek debt and economic situation will be much worse than it is today (which will also be true for almost every country in the Eurozone).  Conversation alone cannot possibly do anything about the manifold problems in the Eurozone broadly and Greece in particular.

Another strange and bizarre exercise is the testimony this week of Fed Chairman Janet Yellen.  Rather than openly admit that economists no longer, if they ever did, have any idea what the effect of monetary policy may or may not be, Yellen got out the straight-edge once more and predicted that whatever is currently going on will continue to go on (which is basically the same speech given at every Fed briefing since Ben Bernake's reign began.

The most serious risk to the American economy, aside from terrorism, is the risk of unexpected and unanticipated inflation. We no longer have any real idea what causes inflation and an absurd pre-occupation with the possibility of deflation.  Historically, deflation has rarely done any economic damage to any real economy (with the possible exception of Britain's return to pre-war gold parity in the 1920s).  The massive expansion in central bank balance sheets throughout the western world in the past decade likely will lead to levels of inflation that are currently assumed to be impossible.  We shall see.

In any event, nothing of substance is going on in Athens, Berlin, or Washington DC these days that appears helpful to economic growth in the future.

Monday, February 2, 2015

Germany in the Crosshairs

France declared its support for the new Greek government yesterday.  France, a country with some of the most anti-competitive regulations, highest taxes and among the most flagrant violations of Eurozone fiscal rules and agreed labor law reforms, is telling Germany that Germany should step up to the plate and provide even more funding for Greece.  Fat chance.  

It is certainly true that Greece will eventually default.  It is also true that, in time, France will default as well.  Both of these countries will be joined by many others.  They will all eventually run out of "other people's money," as Margaret Thatcher once famously opined.  What happens to Germany will depend upon how much deeper Germany goes in underwriting the absurd fiscal policies of Greece, France, Italy and Spain.  Germany may well, already, be past the point of no return.  Even Germany, arguably once best "credit" in the world, is now approaching the credit-worthiness of its southern neighbors.