Stimulus mirage

Stimulus mirage

May 10th, 2012 in Opinion Free Press

Memo to Europe: Don't do it!

"It" being trying to prop up Europe's pitiful economies with enough government spending to choke the Danube. (Unemployment among Spaniards under 25 is a breezy 51 percent, and the overall figure is a less-than-scintillating 24.1 percent.)

And then there's Greece. And Italy. And ... .

Well, you get the idea.

Anyhow, Euro-socialists are floating the notion that all that's really necessary for prosperity to return is a lot more government spending.

That, in case you missed the giant flashing signs, is exactly what got so many European economies in deep buttermilk to begin with.

Greece, for instance, long has operated as practically an organized crime ring, with government bribes and other forms of corruption mingled with lavish entitlement programs whose costs were at least partially hidden by clever accounting.

But the bill came due, as bills tend to do, and bailouts from the European Union haven't solved matters. Many European countries simply do not have the money to pay for the things they want. Let us repeat that, since it sounds painfully reminiscent of circumstances here on the other side of the Atlantic: Many European countries simply do not have the money to pay for the things they want.

Yet many of their people are so debilitated by long-term dependence on government that rather than focus on how they can individually help themselves through hard work and initiative, they are reduced to violent protests and mindless demands for the governments that created the mess to solve it -- via the same means that generated the crisis.

And so we get the recently popularized idea that some government cutbacks of recent years are to blame for continued Euro-misery.

Government could "stimulate" the economy and make it all better with lots more spending, the thinking goes.

Left out of the anti-austerity blame game is the fact that European nations are coupling some spending reductions with massive tax hikes.

"Economies are contracting across the Eurozone as governments cut spending and raise taxes to reduce deficits," The Associated Press reported. Fresh new spending is viewed as the solution to the economic pain.

Spending cuts and deficit reduction are worthwhile. But unexplained is exactly how the economy is supposed to expand when a country seizes an ever-greater share of its people's output and guides that money into things that the people obviously didn't choose to spend their money on while it was still theirs.

That is among the fatal flaws of "stimulus" spending. It presumes superior, almost mystical knowledge on the part of a few that entitles them to spend the money of millions of others more wisely and productively than they can spend it themselves. The ghastly arrogance of that view is exceeded only by its sheer inaccuracy. (See "Stimulus, U.S.")

Europe is not practicing "austerity" in any meaningful sense so long as it mixes necessary spending reductions with disastrous tax increases that divert capital out of the free market, where it otherwise would be distributed more efficiently. And pumping more dollars through government into "stimulus" only adds fuel to the fire.

Seeking deficit reduction through tax hikes -- rather than genuine free-market growth, which thrives on the plentiful capital that stems from lower taxes -- is no recipe for a healthy economy.