July 15, 2015
The original upload can be viewed here, together with comments.
January 23, 2015
November 16, 2014
It is difficult to think of anything more hypocritical than libertarian groups taking state money. But worryingly the vast majority of organisations in continental Europe that style themselves as ‘free-market’, ‘libertarian’ and ‘classical liberal’ are funded with money appropriated from taxpayers. And given that libertarians in the US and UK spend a great deal of time arguing against foreign aid, it is rather ironic, to say the least, that many of these groups have been willing recipients of aid money from the US, EU and other governments.
This is not just a matter of principle. The government money has typically been tied to particular research projects and events programmes. These have promoted policy agendas that a high proportion of libertarians would find deeply objectionable and that bear little relation to genuine free markets.
Unsurprisingly there is a close correlation between such output and key priorities of the European Commission and US economic/foreign policy. Thus one observes a plethora of reports and events on deepening European integration and harmonisation; on strengthening the protection of ‘intellectual property rights’ – a particular focus of US lobbying; on cracking down on the informal economy (Konkin must be turning in his grave); on introducing pseudo-markets, coercive welfare systems and sham privatisations; and on entrenching the special privileges of large corporations through rigged-trade agreements such as TTIP.
Needless to say, senior figures at these organisations have frequently been prominent apologists for US foreign policy, even if this has meant completely betraying basic libertarian principles. Many of these state-funded bodies have also enjoyed an unhealthily close relationship with political elites, particularly in some of the smaller central and eastern European countries. Staff have often gone on to assume senior positions within governments, while some organisations have engaged in detailed policy engineering in cooperation with state bureaucracies.
Such politicisation is tempting – concrete examples of political influence make it easier to attract donations from special interests. But it’s also very dangerous. It increases the temptation to sell-out on principle and distorts research priorities towards those areas most helpful to political elites, while deterring organisations from criticising their political patrons. Worse still, it can do serious long-term damage to the libertarian/free-market movement when initially sensible policies are captured, distorted and rendered dysfunctional by state agencies, politicians and vested interests. Take the numerous botched privatisation programmes that resulted in crony capitalism and/or inefficient rigged markets. Fed through the government grinder, they have brought immense discredit on libertarian ideas.
This is not to say that the overall impact of these government-funded groups has necessarily been negative. Often they have been effective at raising awareness of the dangers of heavy taxation and high inflation, for example. Their agenda may well be preferable to many of the other statist traditions in the region. Perhaps the main objection is therefore their use of terminology – how they describe themselves as libertarian and free-market, pepper their literature with the words ‘freedom’ and ‘liberty’, when in reality they are promoting a particular model of state-capitalism that largely serves certain special interests in the West. And given their prominence, there must be a danger that potential libertarians in Europe will be led astray. Students may not realise that the ‘libertarian’ events they attend or websites they visit are funded by the EU, German government or USAID, and accordingly promote worldviews that differ markedly from genuine libertarianism.
Finally, it should be noted that it is unlikely to be in these organisations’ own interest to continue taking government money. Their dependence on state funds undermines their credibility, not only with the wider libertarian/free-market movement, but also among ‘opinion formers’ in their own countries. At worst, they risk being viewed as sock puppets for the US and EU, particularly as the rise of the internet and social networking makes it increasingly difficult for them to keep their state-funding secret.
These groups have important lessons to learn from organisations that have enjoyed sustained, long-term success in the US and the UK: don’t take government money, stick to your principles, and keep politicians at arm’s length.
Unless otherwise stated, all articles on this website are written in a personal capacity.
February 23, 2013
European leaders are advocating greater fiscal integration in response to the ongoing euro crisis. Despite their professed euroscepticism, David Cameron and George Osborne have offered their support for this approach. Yet such a policy would probably be ineffective at preventing future crises and could further damage European economies in the long-term.
One option being considered is stricter EU supervision of national governments’ borrowing levels – a rigorously enforced version of the failed Stability and Growth Pact. If this policy had been imposed during the last decade it might conceivably have moderated some aspects of the Greek crisis (although for many years the Greek government hid the true level of its debts and several other governments ‘cheated’ to meet the Maastricht rules). Strict fiscal controls would not however have addressed the effects of a one-size-fits-all monetary policy applied across diverse eurozone economies. Indeed, Ireland and Spain were among the most prudent eurozone governments during the recent boom period, with low budget deficits and low national debts. The problems in these countries largely resulted from inflationary bubbles which eventually collapsed.
A key question is how EU fiscal authorities would behave towards countries where credit booms had collapsed leading to a large fall in tax revenues. A strictly enforced fiscal stability rule would force national governments to cut expenditure immediately, even if this meant breaking commitments to electorates. In economic terms this could be a welcome development in that would preclude counter-productive Keynesian fiscal stimulus measures. However, the political incentives created by such economic shocks are a cause for serious concern.
National politicians would have strong incentives to blame the EU for severe depressions (and indeed the eurozone clearly does magnify boom-bust credit cycles in some countries). Accordingly, EU institutions, with their agenda of increasing integration, would have strong incentives to attempt to counteract economic and political instability with large fiscal transfers from the centre. In other words, counter-cyclical public spending by national governments could be replaced by fiscal bailouts/stimuli at EU level.
More and more vested interests would become dependent on such spending, making it difficult to roll back and leading to an enlarged role for the central EU authorities. There is therefore a strong likelihood that fiscal integration would eventually lead to the creation of a ‘transfer union’, with stronger countries subsidising weaker ones. The stronger economies would be damaged by higher taxes, while the transfers would crowd-out private-sector activity in the weaker economies, preventing their recovery – as we see in peripheral regions of the UK that are heavily dependent on subsidies from the South-East. An additional danger is that fiscal integration would eventually lead to tax harmonisation – destroying the benefits of tax competition. In conclusion, fiscal integration threatens to undermine the competitiveness of the EU’s more successful member states and thereby speed up the region’s already rapid relative economic decline.
27 October 2011, IEA Blog
February 23, 2013
They were warned. In the late 1990s, eminent economists queued up to explain the flaws in the euro project. Chief among them was Nobel Prize winner Milton Friedman, who in 1999 – the year the euro was born – predicted that “sooner or later, when the global economy hits a real bump, Europe’s internal contradictions will tear it apart”.
But the fatal conceit of EU policymakers triumphed. The euro was a key plank of their long-term programme to centralise power at supranational level. Given this agenda, it is unsurprising that the EU’s response to the current crisis has been to further emasculate member states. Following the bailouts, the fiscal policies of Greece and Ireland are severely constrained. In the longer term, a similar approach may be rolled out across the Union.
The Stability and Growth Pact was supposed to prevent governments getting into too much debt. Budget deficits were to be under 3 per cent of GDP, while national debts were supposed to be under 60 per cent of GDP. But the pact proved impossible to enforce. Several countries – including Germany – broke the agreement, with no sanctions. Others only satisfied the criteria through creative accounting.
Stricter EU controls on government borrowing – for example a new Stability and Growth Pact with real teeth – clearly have the potential to reduce the economic problems associated with government debt. But policymakers are deluding themselves if they think this approach will solve the fundamental problems of the eurozone.
Applying a one-size-fits-all monetary policy to a huge geographical area with different cultures of saving and debt, different banking systems and different economic conditions, will inevitably blow up inflationary bubbles where interest rates are inappropriately low. The effect is exacerbated by the implicit bailout guarantee given by eurozone membership, which reduces the risk premium demanded by lenders.
In Ireland and southern Europe, a fake boom based on credit rather than productivity growth led to a huge misallocation of resources – particularly into property markets. Wages rose rapidly, especially in the construction sector.
Once the supply of credit dried up, this house of cards collapsed. And the countries that experienced inflationary booms now face a very painful adjustment process. Bad investments must be liquidated and wage rates will have to fall by around 25 per cent to become competitive with the core nations of the eurozone. This is horrendous. It suggests countries such as Greece and Portugal face a fall in living standards comparable to that suffered in the United States during the Great Depression.
Worse still, high levels of employment regulation in southern Europe are a huge obstacle to the necessary correction in wage rates. The likely result is mass unemployment. Southern Europe is also cursed with traditions of social unrest and hostility to economic liberalism. Moreover, rapidly ageing populations will put extra pressure on public finances, while environmental policies threaten to undermine vitally important tourist industries by dramatically increasing the cost of air travel.
Yet recovery is still possible and the EU could do a great deal to help southern European countries bounce back. In particular, it could undertake a systematic programme of deregulation, rescinding directive after directive to lower dramatically the costs of doing business. The EU can also encourage member states themselves to reform, for example by liberalising labour markets. But so far the response to the economic crisis has involved more regulation, not less. For example, many more restrictions have been placed on financial markets, which are crucial to the investment that drives recovery.
The absence of a deregulation agenda raises the question of whether the eurozone should be broken up, with some countries re-adopting national currencies – though perhaps still allowing the euro to be used as legal tender. The new currencies could fall in value, allowing wage rates to fall without overt cuts in pay. However, the devaluation option – which happened repeatedly in many countries before the euro – arguably encourages reckless tax and spend policies.
A break-up could also lead to mass defaults on euro-denominated government debt in those countries that left the zone. Much of this debt is held by banks across Europe. Default could trigger their collapse and demands for yet more bailouts. Break-up of the euro would also be deeply humiliating for politicians and bureaucrats who have staked so much on the project and a European centralisation agenda that appears to have no reverse gear.
There are large political incentives to maintain the status quo. Struggling countries will continue to be propped up by subsidies and the fundamental flaws in the euro will remain. The EU may increasingly become a transfer union which redistributes resources from more successful countries to failing ones. Necessary adjustments will be delayed and eventually the economies of the stronger nations may be undermined.
For the last twenty years, Western Europe has suffered from slow growth and rapid relative decline. The euro crisis threatens to speed up the region’s descent into economic irrelevance.
23 March 2011, PSE