Sunday, 13 May 2012


First it was Club Med that experienced a relapse of sluggish economic growth with Spain and Greece slipping back into negative growth. The reasons outlined by the 'experts' who caused the original depression were, "The currency wasn't flexible", "There was no devaluation", "Governments couldn't deploy monetary measures", all because such powers had been centralised to the ECB.

Then the UK recently slipped back into recession. Yet it has consistantly devalued, it has consistantly printed more money relative to other Western nations and it's Government has deployed uber loose monetary policies to try and "solve" the growth issue. However the UK has still come a cropper too. 

UK pay in real terms has fallen more then anywhere, inflation is higher relative to other countries, the country is still running a large budget defecit (just as  Keynsians claim this is whats needed), it has printed hundreds of billions, nationalised industry, had historically low interest rates that are very negative when taking into account the current inflation rate and the currency has been  devalued considerably. All of the above are always touted by Keynsians as the solution however it has done the UK no good what so ever. None of this suprises me, nor should it suprise the reader of this blog.

A lot of claims have been made that the UK has fallen back into recession due to the austerity measures. However all of the above does not indicate austerity but reckless government spending, as bad as under the previous Labour government. Cameron and the Conservatives are performing exactly as I thought they would, no spine and all sound-bites. Indeed it is worth repeating:

The Tories may be historically comfortable in this setting but how many grass root Lib Dem supporters are going to swallow the medicine? Defection of many to Labour is inevitable. And remember - "things were going 'well' under Brown". This could cast the Tories in the wilderness for a decade if they practice what they preach. There's only so long you came blame the previous government for the mess. Give it a year and people won't be seeing Labour mess but will instead switch their view to Tory mess. Just like Thatcher. People forgot the Labour mess in the 70's, they just remember the early eighties.

It seems the recent local elections have also reflected this mood (I realise some of the votes will be on local issues, but more commonly its used if people support current policies). Labour regained a number of councils and increased its share of the vote. Cameron is the latest scapegoat, the problem being unlike Thatcher he's not fixing anything and has to contend with stronger opposition with his Government having no ruling majority like Thatcher had. He's reliant on money printing, negative interest rates and a huge Government deficit. There's nothing austere about his politics. Ed Milliband keeps moving towards the center ground, refusing to trip up on left wing questions, such as questions on Union strikes, and maintains a consistent view with Ed Balls re-iterating the need for growth, ie more money printing and fiscal deficits. 

Public opinion in the UK is changing towards running deficits to support growth, a dangerous combination. Individual freedom, free markets and liberty create growth. When a Government tries to create growth it does the complete opposite over the long term. Running deficits, spending money on public works, creating inefficient and wasteful entities, removing entrepreneurship - all this does is stifle societies economic fabric. Socialism will always collapse for that reason. If I was a politician I could campaign for growth. I could promise that I would create employment, create public works projects, hand out subsidies, tax the rich. It's incredibly easy to do but this will never create the prosperity we all desire. 

Unfortunately the UK is slipping into this mindset where Government needs to increase spending once more. So far we have only endured mild stagflation but it will intensify going forward as people once more seem to be seeking for state intervention. Growth is peddled as a solution, but sustainable growth can only ever come from the free market, not Government Spending.

Its not only the UK that has lurched towards the left and away from 'Austerity'. The recent French elections have opted for a Socialist leader, Hollande, who like all Socialists has promised the earth but like any politician has no means to deliver. France already spends beyond its means yet has opted to spend, well, more. Policies will be watered down as market reality hits. 

Greece continues to be rudderless with the elections bringing no clear decision. Extreme parties such as the far left and right have gained at the expense of the  usual popular moderate parties.

I detailed the problems with PR in a previous post and Greece is a classic example of the problems caused. As a student of history it reminds me of many European Countries during the 1930's, similar to Germany, when Hitler rose to power. When crisis hits, people seek radical alternatives. The Greek people went for the extreme right and left, just like what happened in Germany 80 years ago. No one could form a Government, so Coalitions were formed, in Germany's case the moderate right aligned with Hitler's Fascist party believing they could moderate his views and was seen as the only option against the communists to uphold the status quo and form some sort of Government. Well what a mistake that turned out to be.

Times have changed, so I think the Greeks will see sense on the second election (although I may be wrong), but PR gives extremes platforms to perform on. Under first past the post systems that we have in the UK, it means people stick with moderate conventional politicians as extremes struggle to field candidates in all seats. People therefore vote for a party that will likely get the local seat. With PR, there is no such check and people can vote for extremes knowing full well there is not a number of seats to win, its a percentage of votes which gain seats, this in turn makes extremes more appealing. Extremes always offer people simple solutions. Problem is that whether its the far right or left, they always endorse catastrophic policies resulting in a complete erosion in individual liberties. Both ends of the spectrum believe its my way or the highway, and persecute anyone who gets in their way.

Greece now has the problem of no effective Government. Just like 1930's Germany, the moderates have to seek help from extreme parties in order to try and form a Government. The anti-austerity parties seem like they will get their way.

Recession. More Government Chaos and no real solutions. Some things never change.

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