Krugman: Welfare State Not To Blame!

Well that's a relief.  The New York Times' Paul Krugman assures us that the welfare state is not at the bottom of the current Euro crisis.  Some countries with big social protection expenditures like Germany are not in trouble, he tells us.  Anyway, back when the Euro was first proposed, a lot of conservatives were for it.

Then there is austerity.

The other thing you need to know is that in the face of the current crisis, austerity has been a failure everywhere it has been tried: no country with significant debts has managed to slash its way back into the good graces of the financial markets. For example, Ireland is the good boy of Europe, having responded to its debt problems with savage austerity that has driven its unemployment rate to 14 percent. Yet the interest rate on Irish bonds is still above 8 percent — worse than Italy.

Of course, he has a point.  But I would argue the bigger point.  Let us borrow a principle from environmentalism to do this: the Precautionary Principle.

The fact is that modern government pushes the economic system as hard as it can.  Partly the reason is to get cheap credit.  Partly the reason is to goose the economy to get revenues.  Partly the reason is to get out of a jam.  All of this violates the sacred Precautionary Principle, which says that you should know the outcome of technological actions on the environment before you barrel in.  How come that the party of the Precautionary Principle got us into such a jam with its non-environmental policies?  Surely the Precautionary Principle can be applied to all of life.

Instead what we get, every day, is some new subsidy program that just bandages some arbitrary economic wound.

Today is Veterans Day, and we are celebrating a veterans jobs bill that will give businesses a tax credit for hiring veterans.  It passed the US Senate on November 10.  It's nice to help veterans, but it would be better to have a solid stable economy in which all Americans can look for jobs and 9 percent of Americans aren't out of work.

Probably we won't get an economy like that until we have a proper separation of economy and state.  We all worship at the altar of the separation of church and state, although everyone wants his religion endorsed by the government.  Still, one of the defining ideas of the modern era is to separate throne and altar, to divide the powers of force and moral persuasion.  In the agricultural era the condominium of secular and religious power was endlessly abused, and as soon as God died, the idea got reborn in the modern secular religions like socialism and fascism.

Government makes a complete mess of the economy, because government is force and the economy relies on completely different principle: trust, the freedom of employment at will and consuming at will, and submission to the "creative destruction" of the marketplace.

And that is the problem at the bottom of the Euro crisis.  Everyone is busy trying to get the government to support their pet plan.  But if there was any virtue in those "pet plans" they would get funding without the intervention of government.

The current financial crisis represents the bonfire of the pet plans.  Some of them are subsidy plans like Fannie and Freddie.  Some of them are due to unaffordable pension and health care plans.  Some of them are just bad luck.

But there is no excuse for any country to have a National Debt over about 20 percent except after a bruising war.  A big National Debt is just asking for trouble.  And it will come.