A few years ago, the prestigious economic publication, Journal of Economic Literature, dubbed the period from 1980 to 2005 “the age of Milton Friedman.” Harvard University economist Andrei Schleifer described this era of greater reliance on free markets and privatization, as arguably the period of greatest economic advance for mankind in world history. It would be hard to argue against that. As freedom and free markets were on the march, more than 1 billion people worldwide, mostly in China and India, moved out of poverty. Tens of trillions of dollars of new wealth were created worldwide.
But the last decade could be described as the comeback of socialism. In response to the financial crisis, nations foolheartedly turned to central governments to steer them out of crisis. Government debt, spending and regulatory activity soared all across Europe and in the United States. The Keynesian model that government welfare spending as a “stimulus” came storming back in vogue — nowhere more so than in the United States.
Many countries, including Greece, Italy, Spain, Portugal and France — as well as the United States — experimented with quasi-socialist governments. Now the bitter price is being paid.
This more than anything else explains why the world is twisting in financial turmoil in recent weeks. Not just Greece, but at least a half a dozen nations appear to be on the verge of bankruptcy because they can’t afford the social welfare states they have, and the bills are coming due. The socialists are getting hammered.
Meanwhile, China’s government is responding to a manufactured stock market bubble with more promises of Keynesian monetary and fiscal stimulus — interventions that will work there as well as they have in Japan and the United States.
Wall Street is acting as though more government intervention will calm financial markets, when it is excessive intervention of government that created the crisis in the first place. Greece is socialism on steroids — a place where the government gives a lot of things away for free, few people work, and millions receive government pensions, paychecks or welfare benefits. Fifty percent of young people don’t have a job and over half of Greeks retire before age 60. The wagon is full and no one is left to pull it. Now Greece thinks that the Germans or the, EU, the IMF or the United States is going to pay for it all. The crash is coming very soon and the standard of living in Greece will surely plummet. Thank you, socialism.
But there are so many more dominoes that could come crashing down. Almost all of Europe is a financial sink hole. The debts as a share of gross domestic product are 100 percent or more and the public spending as a share of GDP is now just shy of 50 percent.
Pundits on the left such as Paul Krugman can only lamely respond to the European meltdown by arguing that there is “too much austerity” even as debt loads keeps rising every year. The one nation in Europe that didn’t use massive Keynesian stimulus, Germany, is the one place where the economy is still functioning.
Dan Mitchell, an economist at the Cato Institute, has noted that the idea peddled by the left that nations like Greece are being ruined by austerity is one of the great mythologies of modern times. “The nations in the most economic trouble,” he says, “tend to be the ones that have jacked up their government spending and debt the most.”
Even in the United States, socialism is failing. Connecticut is the Greece of the East Coast. It keeps raising taxes and spending, and the state is in perpetual insolvency. The same can be said of Detroit, Chicago and a dozen California cities that can’t pay their bills. Puerto Rico is a socialist welfare state and it may need to go into receivership to pay off tens of billions of unpayable debt.
We are now entering a new era of global finance when government bonds — sovereign debt — will be defaulted on because there is no one left to pay the bills and no one to bail them out. The poor will get poorer and the middle class will fall behind — the opposite of what socialism promised to deliver.
Shortly before he died, Milton Friedman lamented: The enduring lesson of the 20th century is that socialism is a failure and free markets are a success. But the politicians keep advocating just a little more socialism.” That is precisely what is ailing the world economy today.
• Stephen Moore is a Fox News contributor and co-author of “An Inquiry into the Nature and Causes of the Wealth of States,” (Wiley, 2015).
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