Monday, November 14, 2016

Absence of Economic Growth is Killing the EU

Pundits come up with a multitude of reasons why the EU is falling apart.  There is really only one main reason.  Zero economic growth.

The absence of growth in Europe has the same roots as the virtual elimination of economic growth in the US -- too much government.  Taxes are too high and regulations are overwhelming.  Net business formation is zero and employment growth, to the extent there is any at all, cannot keep up with the small growth in the work force

This is the price of the welfare state and a meddling government bureaucracy.  In America, the tensions created by the absence of economic growth fuel the Sanders/Trump phenomena.  In the EU, the same tensions are fueling the rise of nationalistic, anti-immigration and extreme-leftist political parties that are on the rise.

Economic growth solves lots of problems.  Killing economic growth inevitably destroys the political concensus needed to govern from the middle.  Europe is learning that lesson the hard way as the EU slowly but surely disintegrates. 

Hopefully, the recent election in the US might bring enough of a return to free markets to get economic growth back into the picture.  If not, the centrist parties in the US will become increasingly irrelevant and the path to a European-like political disintegration is simply a matter of time.

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