EU’s Economics of Ideas

The underperforming of the European Union economies is a fact not contested by the left or the right spectrum. The meager economic growth following the US spread globally recession has crashed banks and governments alike. Close to call elections miraculously avoided the far right or left parties from taking over – good example was Austria; however, in Hungary the luck ran off, the Brexit, the Italian referendum, or the ravaged Euro barely holding above the Dollar, and many more were the consequences of the EU economic policies, the Euro and  the 3% Debt Rule that did not give any flexibility to national governments, the German rigidity pushing trickle-down liberalism and imposing strict austerity. The EU economics up to the Quantitative Easing by its Central Bank had been by the book, but even by the distribution of the QE such has been continuing consistently: simply enough, the EU economists and policymakers believe in the trickle-down economics of the Capitalism up to un obsession, and when it did not work out the politicians manipulated governments, elections, referendums to prove that the not working is either what is suppose to be, or just a temporary occurrence that most definitely will improve if the policies are even further rigid. The politicians have been so much blinded by their ideology and fellow economists that they tended to blame anyone: nations of being stupid of voting out of the Union, or opposing austerity, the ones on strikes against cruel measures undercutting their benefits and wellbeing, even the economic indicators which month after month and year after year have been showing total underperformance; indeed, their stubbornness have over passed any reason. But most important it has brought general misery to the EU populace that instead of vivid market development and prosperity such approach has brought general stagnation. Some economists have blamed it on the Euro or other technicalities being afraid to call it an inadequate economics that could not apprehend the forces of globalization and high productivity to spur business activities and responsive consumption/demand. The pro supply driven EU economics is founded on proven by the history philosophy that built economic powers from the US to Germany and Japan; but why the system has not been working out for the recession and post recession times, or it could not have been done any better?

In the world exists a big diversion that on macro-level large businesses: manufacturers, financiers, high tech and service companies, etc would have the markets / economies self-adjust, the recessions should be short synonyms for such corrections. The tight leach of debt prevents from redundancies and inflations; whereas, economies are run on budgetary principles. Then the 2007-9 recession came out roaring over the US and other countries invoking more actions by the Central Banks and Governments: Quantitative Easing, Subsidies, bailing Large Banks, Corporations, extending Unemployment Benefits, Foreclosures, and other countercyclical measures that finally helped stabilizing economies. Though the results differ from region to region, from country to country: some like China withstood these winds just by slowing growth, others like the US, UK, and Japan managed to come out on clear with even short of full recoveries modestly higher growth and lower unemployment, and third as the EU that the growth is small to nothing and the unemployment in places like  Greece, Spain runs in the 25% and on youth over the 50% and over all the EU is on the double digits unemployment rate. Between 1993 and 2005, 98% of households in 25 advanced economies experienced rising real incomes. But in recent years this trend has ground to a halt, and even gone into reverse. The pressure of the globalization and technologies has been accelerating progressively therefore the ability of the self adjusting austerity economics to keep employment and debt in the normal levels have become less effective: the artificial interference by the governments and central banks of the most advance economies is a good example of such process. The off-hand economics must evolve into invisible-hand ‘as it comes; as it goes’ economics; however, there comes the question are the governments capable to generate and hold on concerning their inflexibility and incompetence when it comes to markets and business? – a legit question! The governments and central banks could only jump start business activities either by market leaps or/and targeted investment, but only business competition on a micro-level posses the functionalities to succeed market development with lasting effect. However, some countries like China, Norway have more developed government structures than others like the US, UK, so, as mentioned before countries, markets with governments too involved in business must withdraw on a micro-level, let the business competition compete and adjust. In the opposite example the complete hands off by the governments and central banks when it comes to social and infrastructure is ineffective thus these governments and central banks must get more involved by ensuring social improvement. The balance of involvement is in the point of market success and equilibrium.

Practically, how to manage Market Equilibrium? – from one side it is full employment and fair market competition and from another it is limited Inflation/Deflation – the Market Tools are used to either spur or slow market development to prevent high Inflation/Deflation volatility. Debt and inequality are secondary effects on a functional or dysfunctional market development: logistically when functional market development debt and inequality will be low to moderate and the way around. Market development builds equity thus creating opportunities for return on investment, high inequality is a product of not fluent market development: either underemployment is very high or market competition is unfair, therefore, if Market Agents are adapted the micro-level market forces will naturally for the market distribute wealth more fair and debt will be more limited. The ideas that tight leach on access to financing to prevent inflation/deflation is the only approach had worked in a pro supply economy and no concerns about Earth pollution, thus the system must evolve into a worldwide markets development to offset Inflation/Deflation – the Global exogenous to most  markets forces must sustain the demand driven Inflation; the ongoing market competition should offset Deflation. However, on a Macro-level market tools must be used as parameters to prevent, diminish Inflation/Deflation built ups.

If the EU is an example of how inadequate orthodox economics has been, and China of using flexible economics has performed, the theory of economics should practically comprehend the real economic reasons for such developments. Why in the near past the Soviet Block ran by the governments economies experienced constant goods and services’ shortages lacking innovation while the Capitalism succeeded in establishing high living standards and high productivity; then why the turn around the nowadays China using mixed free market competition and state governed ones have better improvement? Is it because the Capitalism is not performing anymore or the Social distribution in combination with the free markets betters? – well, I believe, it is some of the above but not in the ways of Socialism to Capitalism comparison: it is the Marketism I.e. Market Economics that at the moment is adapted by China or even more, it is the Marketism not being adapted by the EU that by the way has much more advanced structures to boost market development on the first place; it is the stubborn EU economists and politicians that are to blame for it, not the way around. The Marketism is closer to the Capitalism than to any other philosophical system. The personal freedoms are great advantage when developing markets, if properly given the opportunities, and disadvantage if not.

Joshua Ioji Konov 2016

About Joshua Ioji Konov
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