Can anything save Europe, and us?

According to Friedrich von Hayek, the development of welfare socialism after World War II undermined freedom and would lead western democracies inexorably to some form of state-run serfdom.

Hayek had the sign and the destination right but was entirely wrong about the mechanism. Unregulated finance, the ideology of unfettered free markets, and state capture by corporate interests are what ended up undermining democracy both in North America and in Europe. All industrialized countries are at risk, but it’s the eurozone – with its vulnerable structures – that points most clearly to our potentially unpleasant collective futures.

As a result of the continuing euro crisis, European Central Bank (ECB) now finds itself buying up the debt of all the weaker eurozone governments, making it the – perhaps unwittingly – feudal boss of Europe. In the coming years, it will be the ECB and the European Union who dictate policy. The policy elite who run these structures – along with their allies in the private sector – are the new overlords.

We can argue about who exactly are the peasants, the vassals, and the lords under this model – and what services exactly will end up being exchanged. But there is no question we are seeing a sea change in the post-war system of property, power, and prosperity across Western Europe, just as Hayek feared. An overwhelming debt burden will bring down even the proudest people.

The ECB-EU approach will not of course return countries to reasonable levels of growth – the debt overhang is simply too large. The southern and western periphery of the eurozone cannot grow out of their debts under these arrangements, and so will stumble from stabilization program to stabilization program – just like Latin America did during the 1980s. This is bound to be acrimonious, leading to hostile politics, social unrest, and more economic crises.




  1. Gildersleeve says:

    Yes we can, just do away with the British economic system. Model everything on FDR’s approach (including possibly allowing more than 2 terms for a President).

  2. qb says:

    I honestly don’t blame banks, most western governments rigged the game in the late ’70’s and early ’80’s to favor corporate earnings and growth over personal earnings and savings.

    Looking at the US the policies were designed to reduce any real wage growth so jobs could be created through corporate growth. There was no balance. Therefore jobs went to the bidder with the highest productivity to cost ratio. They went offshore.

    American workers were not expected to produce and reasonably save money but support corporate growth through spending. Then banks just followed suit. The banks weren’t going to get the capital they needed to lend money from personal savings anymore but from corporate earnings. Companies didn’t need banks when they could buyout and merge their way to growth so they lent money to consumers instead and the banks were the vehicle.

    Old approach: people saved money, put that money into banks, banks lent for things like business development and real mortgages

    New approach: companies made excessive amounts of money, banks lent this money to people, people spent

    It took the better part of 40 years to screw this up, it isn’t going to be fixed in 2 year election cycle.

  3. sargasso says:

    The European welfare system elevated the health, education and social status of hundreds of millions of survivors of two world wars. Americans with a financial and political interest in keeping that quiet, regularly quote Friedrich von Hayek out of context. The ECB-EU approach, will work in Europe to halt and reverse the economic crisis in the East, but not in the three year economic time frame practised by the USA. And certainly not if they allow Wall Street money to fund their recovery.

  4. Father says:

    Serfdom is the product of people wanting something that has an acceptable cost.

    The danger is that opinion swings so far away from the notion of acceptable cost. At that point the King loses the power to have his way.

    The shiftless Greeks are fighting in the streets for their right to maintain the status quo. The nonshiftless Greeks are still hoping to be able earn a living while carrying the shiftless on their backs.

    We are our own lords. We are soverign.

  5. JoaoPT says:

    This goes to show how you can not have a United Europe made of independent States.
    The USA has more than 200 years of Federalisation to prove the concept and still it wobbles…

    The EU can’t make this happen in a couple of decades, and specially because it doesn’t want to be a United Federal State. That is certainly going away, maybe not in my lifetime, but in my Son’s lifetime surely.
    You just can’t have an Eurozone with the same currency without an Unified Economic Policy. And that can’t happen without a Political Unification.
    Federalization is underway inexorably…
    …or BUST!
    That can happen too, the EU just BUSTS! But that’s a more remote possibility, because the rich States are too deep in the mud too, and if the EU Busts, they’ll Bust too. Germany has no other way than to pressure the commission to push more regulation and that’s what’ll happen.

  6. chuck says:

    “Unregulated finance, the ideology of unfettered free markets, and state capture by corporate interests are what ended up undermining democracy both in North America and in Europe.”

    That’s funny, I thought that the North American problems were because banks were required to give mortgages to people who couldn’t pay. And the European problems were because the people wanted cradle-to-grave welfare, plus full retirement at age 55.

    I guess I’m completely wrong.

  7. qb says:

    chuck, I work with Americans who have moved to Canada. When they buy a house it’s amazing to listen to the bitching about how tough it is to get a mortgage in Canada. Don’t have 20% of the cost? Mandatory insurance. Property must be evaluated by a third party. Can’t write off interest on the federal government, etc.

    Apparently our system is broken up here.

  8. Improbus says:

    Embrace the Depression folks and enjoy your job while you still have one.

    At least this time around we have the Internet to keep us from getting bored.

  9. qb says:

    My other favourite lately. Canadian mortgage insurance is too expensive since the majority of the coverage must be backed by tangible assets. Options and derivates don’t count. Apparently it’s anticompetitive and he should be able to buy his insurance from “a better company like AIG where the rates are cheaper”.

  10. MikeN says:

    Europe is going to be Muslim within a few decades anyway, so any changes now are irrelevant to its future.

  11. qb says:

    #14 Uh huh. Canadian prices went above US prices in around Q2 2005. This was about the same time we passed the same sex marriage law. The two are obviously correlated.

  12. Cursor_ says:

    #11

    Back in the 30s they had the penny arcade, movie theaters with two twin reelers, some documentaries, a cartoon and a main offering. Plus the snacks were cheaper and you could escape all day that way.

    The net is just a modern version of the same thing. Though the toons are not as good as back then.

    Cursor_

  13. FDR, overrated since 1933 says:

    Yes we can, just do away with the British economic system. Model everything on FDR’s approach

    lol, FDR’s first attempt at fixing things had him intervening to keep wages too high in the face of wide-spread unemployment, and preventing agriculture prices from adjusting down. With this bumbling around, he arguably made things worse, until he eventually latched onto the ideas of the British economist Keynes.

    As an aside: I’ve always loved how a major argument of Keynes of why markets aren’t self correcting when failures in demand occur, is that prices are sticky and so aren’t able to adjust sufficiently; given that these government boneheads do everything they can to intervene in markets to prevent them from working in the first place.

  14. amodedoma says:

    Hate to bust your bubbles but this is BS. Oh sure things are bad but the speculation in this piece is ludicrous. But now that were at it… America’s on the brink of class war, their government is completely owned by private interests who care nothing for the collapse of the economy, the destruction of the ecology, or the health and welfare of it’s citizens. Unrest is quickly mounting and individual act’s of desperation (terrorism Timmy McVeigh style) are imminent. Lot’s of finger pointing as to who’s to blame. Military gets pulled from the middle east to keep order back home. People get killed, the thing snowballs – a class war revolution begins.
    All of this within the next 18 months. I bet my speculation about the US is truer than this one about europe.

  15. GetReal says:

    #18
    For your information, the mass murderer McVeigh
    (TIMMY? TIMMY? FOR G-D’s SAKE!!)
    was not motivated by desperation. He was motivated by hate – pure and simple hate. Do your f’in homework!

    No making folk heroes out of murderers – child murderers at that!


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