The old developed world is in denial

All industrialized countries are running high deficits. In Europe, the situation is particularly striking: France has a deficit exceeding 6 percent, and no solution seems politically acceptable. Germany is in full stagnation: its manufacturing base is crumbling, its infrastructure decaying and energy costs have become ruinous. The deficit remains high, while taxes on businesses and individuals are already suffocating growth. If future pension and healthcare obligations were included, total debt would amount to several times the gross domestic product. The United Kingdom wrestles with the same issues, and even the United States is struggling.

These are not passing troubles but deep fiscal, economic and monetary fault lines spreading throughout Europe and North America. Warning signs are flashing: gold has surpassed the $4,000 mark, and government bond risk premiums are rising. Inflation is looming. Yet the continent drifts on in a state of serene denial.

Delusion as economic doctrine

The “solutions” currently proposed by the media, politicians, academics and NGOs insult basic intelligence. Any reasonable observer would conclude that the policies being put forward amount to collective madness. Common sense has left the room.

The Draghi Plan for Europe describes the situation perfectly, yet its proposed remedy – debt unionization – would only make matters worse. Mr. Draghi fails to grasp the true source of the continent’s malaise. But the cause of the problem is painfully simple: the crushing cost of government, regulation and bureaucracy.

Only by shrinking the state’s share of the economy and cutting the cost of administration can a collapse be avoided.

 

A system like Europe’s, where the state accounts for around 50 percent of the economy, is unsustainable. It means that half of the economy must carry the full overhead burden created by the state, which is simply impossible. Extreme overregulation diverts staff into unproductive administrative work and forces the productive sectors of goods and services to shoulder additional bureaucratic costs. If our economies were businesses, most of their employees would be in accounting rather than in production or sales, and bankruptcy would be inevitable.

Governments now want to raise taxes and continue borrowing, which in the current context is practically fraudulent, because the money will be wasted anyway. Each new euro of borrowing undermines the economy and burdens citizens, since additional debt inevitably translates into either future taxation or inflation, without solving anything. The French proposal for a wealth tax and the push to raise inheritance taxes on large fortunes are simply absurd. They do nothing to address the excessive cost of government, which is the root cause of the issue.

Modern Monetary Theory comforts policymakers with the illusion that a state can never go bankrupt. In reality, long before insolvency comes dysfunction. The deficits and debts being run today will inevitably bring us to that point. Only by shrinking the state’s share of the economy and cutting the cost of administration can a collapse be avoided.

The solution is straightforward but would take today’s systems far out of their comfort zones. It would mean rewarding achievement rather than financing idleness, cutting regulation instead of creating new bureaucratic positions, and reducing spending instead of raising taxes.

Unfortunately, this view is largely absent among politicians, advisors, NGOs and the media. Some pay lip service to it but never act on it, and most still cling to the fantasy of limitless spending without consequence. It is far easier to shout “tax the rich” or stage cosmetic fixes like debt unionization. For anyone still guided by reason, one question remains: are they deliberately misleading us? I think the situation is even worse – they truly believe in their own voodoo.

This comment was originally published here: https://www.gisreportsonline.com/r/world-denial/