Saving The Economy

For demand to increase, confidence needs to increase. In order for confidence to increase the world leaders need to take action now.

In Europe, Spain needs money to support its banking system. Europe also either needs to create a politically united Europe or implement a plan to unwind the euro. The first step is to save the Spanish and probably Italian banks. Shortly thereafter, they need to unfold a plan to address the unification of Europe politically.

In the United States a stimulus is needed to prop up employment and not let it drift into the abyss. This includes regulations preventing banks from getting too big to fail, and demanding that banks and Wall Street pay retribution for the mortgage crisis that they created with the sub-prime housing fiasco on which they profited. This retribution will act as a stimulus and its cost to the taxpayer will be limited to enforcing the law. Demand in the U.S. will not significantly increase until concrete steps are taken to give back some of the net worth taken away from the American homeowner by the slick bankers and wall street.

These actions by Europe and the United States will provide the confidence and funds needed to save us from the depression of the twenty first century. More:

Europe and United States

Greek leftist leader Alexis Tsipras: ‘It’s a war between people and capitalism’, The Guardian, May 19,2012

Greeks, Italians and Spaniards need a say in the plan to bring their countries back to health. In addition, the ailing countries should not be allowed to become too assimilated with the rest of Europe so as one country is not too big to fail.

Greece is rebelling against the austerity being imposed on it by the rest of Europe. Mr. Tsipras is leader of a political party in Greece that seems to be in the best position to decide not only Greece’s fate, but also that of the euro. I admire his will to fight for what is right for the Greek’s; however,  it should not be a fight against capitalism.

The fight should be to fix capitalism. Capitalism was created to serve society. Society does not exist to serve capitalism. The same war is being waged in the United States. Our leaders have lost sight of the fact that it is not just government that can destroy free markets. Large corporations that are either monopolies or part of an oligopoly also destroy free markets.

One of the primary roles of government is that of a referee to make sure free markets are not destroyed. No sane professional soccer fan would advocate the game be played with no rules and no referees. Yet many of our politicians advocate that government should let capitalist “fight it out” without rules; winner take all. The problem is society does not win.

‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.’ (Adam Smith, The Wealth of Nations, 1776).

Greece is the cradle of democracy. Maybe it once again leads us back to what is at the heart of what made nations prosper. The United States was founded on the principle that everyone is born with the right to life, liberty and the pursuit of happiness. Early on our forefathers decided the best economic model to reach these pursuits was capitalism. Free markets was chosen to best attain the nations economic objectives.

Germany Under Attack

The other members of the G8 demanding that Germany loosen up on its request for austerity demonstrates the structural flaws of the euro zone. Germany is alone standing up to Greece’s threat to leave the seventeen nation economic gaggle. This is because Greece is not a “state” of Germany and the Germans are not in the mood to give foreign aide to Greece. The other nations of the Eurozone, the United Kingdom and the United States are for helping Greece with German money.

Germany was quick to help create and administer the Eurozone because it was a means to a healthier German economy. The creation of the common currency made it easier to export to other nations and hold down the value of the Deutschmark. It also helped Germany to integrate East Germany into the countries economy.

Certainly without the euro experiment the integration of East and West Germany would have been prolonged and harder to accomplish. Using ones imagination, it is easy to paint a picture of the citizens of the old East German section protesting and rioting because of the demands on the part of western Germans that they must be austere.

Some will argue that Germany benefited the most from the euro, therefore, they should pay the most to keep it viable.That argument does not wash. It is like saying Warren Buffet made billions by practicing capitalism, so now we have every right to go back and claim some of his wealth because he was smarter than the rest of us. It is fine to change the rules going forward, but wrong to retroactively tax past earnings. The same holds true with Germany.

Helping Greece in the short term may be the right thing to do; however, the euro zone is not viable as long as the seventeen nations are not under some sort of political umbrella. This needs to be addressed or there will be a Euro Crisis II.