France elected a new president yesterday, the socialist Francois Hollande who has vowed to rein in “Anglo-Saxon” capitalism and dramatically raise taxes on the “rich.” Voters turned out Nicholas Sarkozy, the flamboyant conservative whose five-year term was undermined by Europe’s economic crisis, his paparazzi-worthy lifestyle and a combative personality. But Sarkozy’s defeat exposes “a crisis of identity and purpose that presently afflicts much of Europe’s center-right,” according to Acton Research Director Samuel Gregg in a new analysis on The American Spectator.
The reasons for this widespread disarray on Europe’s right are partly structural. Many European electoral systems are designed to prevent any one party from governing in its own right. Many center-right parties consequently find themselves in coalitions with left-leaning groups. This blunts their ability to challenge left-wing social and economic policies.
Tendencies to tepidness are accentuated by the fact that European politics is dominated by career politicians to an extent unimaginable to Americans who don’t reside in Chicago. European center-right politicians are consequently even more focused upon acquiring and staying in office than their American counterparts. That means they are extremely risk-averse when it comes to challenging the European status quo — such as becoming associated with proposals for substantive economic reform or confronting the intolerant leftist hegemony that dominates European educational institutions.
A far deeper problem facing Europe’s center-right, however, is its intellectual-ineffectiveness. By this, I don’t mean that there aren’t any intellectually-convinced European conservatives and free marketers. In fact, there are plenty of such individuals. Their impact upon the public square, however, is minimal.
Such ineffectiveness has several causes. First, most non-left European think-tanks are explicitly associated with existing political parties and usually government-funded. Hence, the willingness of people working in such outfits to criticize their own side for failure to promote conservative principles — something many American think-tanks often do — is limited, if not non-existent.
Gregg also offers suggestions for revitalizing Europe’s conservatives. Read “Europe’s Right in Disarray” by Samuel Gregg on The American Spectator.
A week ago, Dr. Samuel Gregg addressed an audience here at Acton’s Grand Rapids, Michigan office on the topic of “Europe: A Continent in Economic and Cultural Crisis.” If you weren’t able to attend, we’re pleased to present the video of Dr. Gregg’s presentation below.
On the blog of The American Spectator, Acton Research Director Samuel Gregg looks at how Europe refuses to address the root causes of its unending crisis:
Most of us have now lost count of how many times Europe’s political leaders have announced they’ve arrived at a “fundamental” agreement which “decisively” resolves the eurozone’s almost three-year old financial crisis. As recently as late October, we were told the EU had forged an agreement that would contain Greece’s debt problems — only to see the deal suddenly thrown into question by internal Greek political turmoil, which was itself quickly overshadowed by Italy’s sudden descent into high financial farce.
No doubt many of these dramas reflect commonplace problems such as governments having difficulty reconciling promises made in international settings with domestic political demands. The apparently unending character of Europe’s crisis, however, is also being driven by another element: the unwillingness of most of Europe’s political establishment to acknowledge the root causes of Europe’s present mess.
One such mega-reality is the unsustainability of the pattern of low-growth, big public sectors, heavy regulation, large welfare states, aging populations, and below-replacement birthrates that characterizes much of the eurozone. Even now, it’s difficult to find mainstream EU politicians who openly concede the high economic price of these arrangements.
Read “Can’t Face Economic Reality” on The American Spectator.
Noted NYU law professor and free-market advocate Richard Epstein has written a provocative piece titled “How is Warren Buffett like the Pope? They are both dead wrong on economics.” Here’s the money quote:
The great advantage of competition in markets is that it exhausts all gains from trade, which thus allows individuals to attain higher levels of welfare. These win/win propositions may not reach the perfect endpoint, but they will avoid the woes that are now consuming once prosperous economies. Understanding the win/win concept would have taken the Pope away from his false condemnation of markets. It might have led him to examine more closely Spain’s profligate policies, where high guaranteed public benefits and extensive workplace regulation have led to an unholy mix of soaring public debt and an unemployment rate of 20 percent. It is a tragic irony that papal economics mimic those of the Church’s socialist opponents. The Pope’s powerful but misdirected words will only complicate the task of meaningful fiscal and regulatory reform in Spain and the rest of Europe. False claims for social justice come at a very high price.
I blogged about Pope Benedict’s comments last week, and while I don’t disagree with Epstein’s main point, I wonder if he actually means to deny the importance of ethics in economics. The Pope wasn’t saying that there should be no fiscal or regulatory reform, but that such reform must consider future, and not merely present, well-being, which is actually the impetus for policies such as liberalizing labor markets. And unlike Warren Buffett, the Pope wasn’t calling for higher taxes on the rich.
In short, the Pope was making a larger ethical argument that can certainly include the much-needed reforms Epstein cites. Since the Pope isn’t an economist and doesn’t pretend to be one, we should listen to his moral teachings and try to incorporate them with sound economics, rather than disparage them as economically damaging. It is true that while Catholic social teaching stresses the importance and necessity of profits, far too many Catholic and other religious leaders neglect how profits are actually made and distributed – which Epstein briefly and usefully describes – and in this sense, it is far too easy for moralists to pit profits versus people. It would make more sense to try to relate how profit maximization can and often does contribute to the common good, but it can’t do so without ethical men and women who won’t lie, cheat and steal.
I’d like to think that both the Pope and Richard Epstein are right.
On his flight to World Youth Day in Madrid this morning, Pope Benedict XVI responded to a question about the current economic crisis. Not sure what the question was, but the well-respected Italian Vatican analyst Andrea Tornielli captured the reply. Here’s my quick translation of the Pope’s answer:
The current crisis confirms what happened in the previous grave crisis: the ethical dimension is not something external to economic problems but an internal and fundamental dimension. The economy does not function solely on mercantile regulations, but needs an ethical reason to work for man. This is what John Paul II affirmed in his first social encyclical: man must be at the center of the economy and the economy must not be measured by profit maximization but by the good of all, which includes responsibility towards the other. The economy works truly well only if it works in a human way, in respect for the other according to different dimensions. The first dimension is responsibility for one’s nation, and not only for oneself. The second is responsibility towards the world: nations are not isolated, as Europe is not closed in on itself, but responsible for all humanity, and must confront economic problems with this “key” of responsibility also for other parts of the world, for those countries that experience hunger and thirst. The third dimension concerns the future, we have to protect our planet, but we must also protect the working of the labor system for all, to think of tomorrow as well as today. If today’s youth do not find prospects for their lives, our today is mistaken and wrong.
It’s pretty clear that the Pope is referring to the economic problems particular to Spain, where youth unemployment is over 40 percent, and also where protesters known as los indignados are blocking the reform attempts of the Spanish government. The same indignados who’ve attempted to start riots in Madrid with World Youth Day pilgrims. The Holy Father is clearly a gentle and patient man.
The Pope also addresses ethics, the central role of the person, our responsibility to others and to the future of our planet. Nothing he said was at all different from what he or his predecessor, Blessed John Paul II, has indicated as a morally correct understanding of the market economy. And as he has previously said, dealing with our failings and weaknesses is the price of human freedom and responsibility. The more freedom we have, the greater the risk of our misusing it. But this is not a reason to restrict that freedom; doing so would actually replace the person from the center of the economy with cold, impersonal regulations.
Perhaps the Pope was referring to the record profits of some banks and other companies while unemployment remains high. Much of this is of course due to government policies to “stimulate” the economy in times of uncertainty, regardless of how that money is spent. Was the Pope questioning the results of Keynesian stimulus spending?
The real challenge for economists and policy makers is how do we move from the good intentions of providing ever-increasing, ethically-sound prosperity for all to actual results. Part of that challenge is the fact that our prosperity is the result of constant competition and rapid change, which can also endanger our current standard of living. It is unlikely we’ll ever be able to “guarantee” a stable, prosperous future for everyone because no one actually “controls” the global economy. The cost of putting someone in charge would effectively cut off the competition and innovation needed to create wealth, and would most likely be a force for evil rather than good. The most we can do is to expand opportunities for all, which is difficult enough for today’s local and national leaders, let alone for any global authority.
It is very easy to forget what is happening in other parts of the world especially when we are in the midst of our own financial crisis in the United States. Considering the economic challenges we are faced with, this may be a mistake as we can learn from other’s problems. Europe is experiencing economic woes that continue to worsen. In the American Spectator, Samuel Gregg explains:
As Europe’s financial crisis worsens, it’s increasingly apparent that the economic woes of countries like Portugal, Spain, and Greece have resulted from more than just bad policy. With each passing day, evidence mounts that one dynamic driving the crisis is that of untruth: a disturbing European pattern of fabrication about levels of public spending and debt.
The latest proof for this thesis is the discovery by newly-elected Spanish regional and local governments of concealed debts run up by their predecessors. This contradicts claims by Spain’s Socialist Finance Minister, Elena Salgado, that Spain’s regions had no “hidden deficits” on their accounts. Spain’s business community, however, has long complained about local governments pressuring private companies to do business with them “off the books.”
One reason for such behavior is that Spain’s government knows that the greater Spain’s real overall-public debt, the higher will be the interest-rates demanded by financial markets and the more stringent will be the conditions attached to any “financial assistance package” (i.e., bailout) that Spain might, like Portugal and Greece, eventually need.
As Gregg says, the financial problems in Europe are not just current but have been festering since the beginning of the Eurozone when strict standards were to be implemented:
In the 1990s, European governments agreed the single currency’s success would depend upon countries entering the eurozone on a solid financial basis and then remaining on a firm footing. To that end, both the 1992 Maastricht Treaty and the 1997 Stability and Growth Pact (SGP) established strict criteria concerning public spending for countries admitted to the single currency.
One such standard concerned the ratio of an applicant country’ gross government debt to GDP. It was not to exceed 60 percent at the end of the preceding fiscal year. Maastricht’s convergence criteria also specified that the ratio of the annual government deficit to GDP should not exceed 3 percent of the same fiscal period.
Such standards were supposed to prevent a “free rider” program from occurring so countries with an irresponsible fiscal reputation, such as Greece, didn’t use their membership to over-indulge and rely on the rest of the members to bail them out. However, this policy wasn’t strictly adhered too. Gregg states that “…many euro applicants were allowed to get away with ‘creative accounting’ to meet the conditions of Maastricht.”
Europe continued to financially falter and wasn’t showing signs of recovery. This could be seen from many actions such as the encouragement of “fudging” numbers through new rules that “added many exceptions for types of spending that would not be included when determining debt and deficit figures.”
Is there a solution to Europe’s financial crisis? Gregg responds with a resounding yes:
Few “core values” would have a more bracing effect upon Europe’s current economic problems than their governments embracing honesty, transparency, and accountability. No doubt many a European political-career would be terminated as a result. The alternative, however, is for Europe’s governments to continue the charade about the real state of their finances.
Morally and financially, that’s not an option at all.
Click here to read the full article in the American Spectator.