The Suicide of Europe

What comes to mind when you picture Europe’s politicians and policy wonks? I think of the gadarene swine who commit suicide by jumping into the sea. Or the lemmings who rush to the cliff’s edge… But why do they insist on dragging the rest of us down with them? Through their influence on the global economy, many more people will share the tragedy that faces Europe.

Economics is a discredited discipline, but governments still invoke the shabby theories as much to deceive themselves as to dupe their voters. Take the case of Britain’s David Cameron. He says that the proposed high speed rail line linking London with the north “would spread wealth and prosperity” across Britain. In doing so, this would close the north-south divide. What’s the reality?

The rail link will increase the north-south divide. That’s a dead cert. The train will help to suck talent and capital into the south-east. That’s the history of the past century, and the Coalition government is doing nothing to reverse the haemorrhage of wealth from the regions to enrich those who live in the south-east.

Look at the funding. The capital and operating costs of £59bn over a 67-year period are forecast to outstrip revenue of £33bn. Deficit to be funded by taxpayers: £26bn. Absent from these calculations is the enormous rise in property prices that will result from the railway. These will exceed the £34bn capital cost of the railway. So while landowners will pocket a windfall capital gain, the tenant/taxpayers in the low-income areas of the north will fund the infrastructural project that will deepen the gap between them and the property millionaires who live in the south-east.

Dead-end Economics

Spain’s Prime Minister, Mariano Rajoy, is also determined to destroy the life chances of his people. By tinkering with “micro policies” to revive growth, he is shrinking the monetary base of the economy and pushing unemployment upwards. The country’s car manufacturers are starved of credit, with sales shrinking and exports dropping off the cliff.

The north-south gap in the car trade widens. German manufacturers are laughing all the way to the bank. Firms like VW are increasing their share of the market because they can offer cheap credit to customers. Germany is having a good Depression. Meanwhile, the Latin and Celtic margins sink deeper into debt. And in Davos, their politicians are celebrated as heroes for sticking to “structural reforms”.

Don’t cry: the tears would be wasted. The politicians are gritting their teeth, determined to crush their countries.

What’s to be Done?

Voices of dissent are beginning to be heard. Beware the sirens. Far from ringing warning bells, they, too, can only come up with yet more poisonous potions. Like the menu of reforms touted by the editor of a City of London newspaper. Allister Heath proposes that Britain should slash its corporation tax to 11%. This, he claims, would cause foreign firms to stampede towards the UK to benefit from a tax rate even below Ireland’s 12.5%. Why? Hasn’t Heath heard that outfits like Starbucks have worked out how to pay 0% corporation tax?

And then Mr. Heath proposes ditching the capital gains tax to encourage property investors in the buy-to-let market. These two tax changes, claims Heath, amount to a shock therapy budget that would boost the British economy. Reality? They would accelerate the UK back on to the land boom/bust pathway to even further destruction in the future. To figure that out, however, requires an understanding of the dynamics of the market economy that is not taught in schools of universities.

If Mr. Heath had aligned his proposals with a corresponding introduction of a charge levied directly on the rental stream received from land, he would be proposing a balanced adjustment in the revenue system that really would kick-start the economy. But that additional reform is taboo in the circles he inhabits. And so, the politicians continue to get away with murder.

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