Politics cannot solve our economic problems

Mary Beth and Floyd Brown

This week we are in the European Union, here to observe the European economic crisis from a front row seat. What we found was even more disturbing than we expected.

The Olympics are in full swing, but you get the sense they are like the Roman Circuses of old. The purposes of the games are to distract the citizenry from the misery of their governance.

One Englishman explained their predicament to me like this. “First they told us this was the worst recession since the early 1980’s, and then they told us that it was the worst recession since the 1970’s, and then they told us it was the worst recession since World War II. Now they are telling us here in Britain that it is as bad as the Great Depression.”

He went on to explain, “We feel fortunate here in Britain because in the Ireland, Spain and Greece people are starting to go hungry.”

We could hardly believe our ears. On the continent of Europe the economic crisis is so difficult that hunger is the result for the first time since World War II.

The economic problems we face are beyond the ability of politicians to solve. Since the economic crisis began in 2008, every three months on average the political establishment in America and Europe has announced some type of bailout or economic rescue operation.

What the politicians fail to recognize is that each successive bailout is like the heroin that lures and destroys the addict. At first a small amount of heroin can provide the fix, but with each successive high, the addict needs more of the drug.

It is same with the bailouts. Each one is bigger than the next, and none ever heal the patient but end up making him worse. Instead the economy has become hooked on the drug of lower interest rates and greater injections of liquidity. But in 2012 the finances of the governments involved, the Central Banks engaged, and finally the banks considered too big to fail, only have continued to deteriorate.

It is never pleasant to say we told you so, but regular readers of this column know that we have been predicting the failure of the bailouts since the entire first endeavor to fix the problem was announced in 2008 by former President George W. Bush.

In America, as in Europe, our elected leaders, Republican or Democrat, are powerless against the storms that are buffeting our economy. We find ourselves astonished that any individual, be he, Federal Reserve Board Chairman Ben Bernanke, President Barack Obama or European Central Bank President Mario Draghi, would be so arrogant as to believe their actions can solve the problems.

Governments and central banks largely create the boom-and-bust business cycles. Only time will heal the pain these institutions created, and only after they cease their misguided attempts to control everything. In his most excellent book, “Human Action,” the greatest voice of Austrian Economic theory, Ludwig von Mises, sums it up this way, “there is no way to avoid the collapse of a credit boom — and that more credit expansion simply destroys the currency.”

More medicine in the form of socialism could forever kill the patient. What we need is a period where markets clear, insolvent banks go under and the government cuts back meddling in the economy and allows free people solve these problems.

The problem with this solution is the irrelevant politicians. In order to secure their re-election, they need to be important. So they will likely keep meddling.

The Obama administration has taken us to the desperate point where 40 cents of every dollar spent at the federal level is borrowed, and the Federal Reserve prints much of the borrowed money. This is called monetizing the debt. Never in history has this not led to financial disaster. The empirical evidence shows the politicians are in a hopeless position, and more bailouts will only prolong the pain.

 

Floyd and Mary Beth Browns are bestselling authors and speakers. To comment on this column, e-mail browns@caglecartoons.com.

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