A warning from the past: The politics of Trump and Corbyn – it is time for classical liberals to wake up

When I see what is being said about the new Labour leader in UK Jeremy Corbyn I fear that we are underestimating the change in electoral preferences in Europe.
 
It is said that Corbyn will cause Labour to collapse from within. That might very well be, but ask yourself why he was elected in the first place. And then ask yourself why Donald Trump is doing great in polls in the US and Syriza ruled Greece for six months and might – god forbid – continue to rule the country for sometime. 
 
What we are seeing is 1930s style politics. It is the politics of fascists and communists. It might be much less extreme, but remember these things don’t happen overnight. It is a gradual process where men in nazi uniforms put on suits – as they are doing in Sweden in the form of the Swedish Democrats. Or keep on the uniforms as Jobbik in Hungary.
 
It is a reflection of the fact that we are now eight years into an economic crisis – in my view mostly a results of failed monetary policies – as it was the case in 1930s. Mainstream democratic politicians failed to get us out of this crisis. In fact they made it worse and therefore people who otherwise would never have voted for Corbyn or Trump are now willing to listen to them.
 
And with mainstream democratic politics weakened in the US and Europe authoritarian figures from Putin, Erdogan, Orban and Assad are now increasingly setting the agenda for Europe and the world.
 
We might be on the way out of the crisis economically in both the US and Europe, but remember that was in fact also the case in 1936. The US had given up the gold standard as had many European countries, but the economics turnaround came too late to change the political sentiment. The result was catastrophic. And with anti-immigrant sentiment increasing in both Europe and the US we have reasons to fear the worst. The fact that it is now becoming political acceptable to suggest mass deportation of Mexican immigrants in the US or of muslims in Europe is horrendous.
 
The similarities between the Great Recession and the Great Depression are unfortunately many. That also goes for the politics and geo-politics of the times: Populism, extremism, anti-foreigner politics, protectionism and war.
 
And who are most to blame other than the central bankers that brought us into this mess? Well, the classical liberals – like myself – who again and again failed to speak out against these tendencies.
 
Classical liberals initially had a very hard time identifying the causes of the crisis and many resorted to ill-informed internet-Austrian analysis of the crisis instead of embracing the monetarist explanation of the crisis (think of Hayek versus Cassel in the 1930s). This has caused classical liberals to oppose monetary easing that would have ended this crisis long ago. As a result many classical liberals – particularly German style ordo-liberalists – should be blamed for helping to create an economic situation, which have created the fundation for the populism and extremism.
Classical liberals also failed because they ignored the social injustice done by the massive rise in unemployment in Europe and partly in the US and the effect that has on the political sentiment. Classical liberals didn’t really care about the suffering of Europe’s unemployed – as was the case in 1930s. In Greece and Hungary parties like Golden Dawn and Jobbik show that they care (or rather pretend to care) for the suffering of the unemployed.
 
At the same time many classical liberals out of fear of the effects on public finances have not spoken out against the anti-immigrant rhetoric and as a result borderline racisme has become politically acceptable on the political right in the US and Europe.
 
Effectively the centre-right is no longer providing a message of hope and optimism. Instead the centre-right is increasingly being taken over by anti-immigrant crazies like Donald Trump and on the left the centrist and market oriented (social) democrats of 1990s have been replaced with people like Jeremy Corbyn who has praised IRA, Hezbollah and Hugo Chavez and who dream of a Great Britain where militant labour unions rule the land.
 
It is time for a counter-revolution against the politics of fear and hatred. It is time for liberals of the left and the right to speak out against those who would like to close the borders for goods, capital and people. It is time to speak out against the authoritarian tendencies in Europe and US politics and to the the libertarians who like the feeling of revolution and the anti-establishment sentiment, which is in the air when Trump and Corbyn speak I tell you – Hitler was also anti-establishment.
If we fail to speak out against racism and protectionism of Donald Trump and the economic fantasies of Jeremy Corbyn we will lose our freedom. 

Horror graph of the week – Greek PMI collapses

If you ever read Friedman and Schwartz’s “A Monetary History of the United States” you know what happens when a central bank fails to act as a lender-of-last resort in the event of a bank run and/or at the same time fails to offset the impact on broad money growth of such bank run.

It of course happened in the US in 1930-31 and again in Europe after the collapse of Credit-Anstalt in Austria also in 1931. In both cases the result was a deep depression. Now it has happened again in Greece, but Greece is already in a deep economic depression.

Just have a look at this shocking graph from Macropolis.gr.

Greek PMI

There is no great reason to trust eyeball-econometrics, but judging from the sharp drop in Greek July PMI (released today) then we should expect another 10-15% drop in Greek real GDP in the next couple of quarters. That would mean that we soon will have seen Greek real GDP being halved since the start of this crisis.

I think it will be very hard to find any other example of a (peacetime) collapse of real GDP of this magnitude in any other country in the world in the past 200 years and there is nothing positive to say about this. It is the terrible consequence of massive policy failures in Brussels, Frankfurt, Berlin and Athens.

A truly Greek tragedy.

HT Joe Wiesenthal.

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If you want to hear me speak about these topics or other related topics don’t hesitate to contact my speaker agency Specialist Speakers – e-mail: roz@specialistspeakers.com.

Also note that I am on a Speaking Tour in the US in October. See more here.

The Euro – A Fatal Conceit

Imagine that the euro had never been introduced and we instead had had freely floating European currencies and each country would have been free to choose their own monetary policy and fiscal policy.

Some countries would have been doing well; others would have been doing bad, but do you seriously think that we would had a crisis as deep as what we have seen over the past seven years in Europe?

Do you think Greek GDP would have dropped 30%?

Do you think Finland would have seen a bigger accumulated drop in GDP than during the Great Depression and during the banking crisis of 1990s?

Do you think that European taxpayers would have had to pour billions of euros into bailing out Southern European and Eastern European governments? And German and French banks! (I elaborate on this here.)

Do you think that Europe would have been as disunited as we are seeing it now?

Do you think we would have seen the kind of hostilities among European nations as we are seeing now?

Do you think we would have seen the rise of political parties like Golden Dawn and Syriza in Greece or Podemos in Spain?

Do you think anti-immigrant sentiment and protectionist ideas would have been rising across Europe to the extent it has?

Do you think that the European banking sector would have been quasi paralyzed for seven years?

And most importantly do you think we would have had 23 million unemployed Europeans?

The answer to all of these questions is NO!

We would have been much better off without the euro. The euro is a major economic, financial, political and social fiasco.

It is disgusting and I blame the politicians of Europe and the Eurocrats for this and I blame the economists who failed to speak out against the dangers of introducing the euro and instead gave their support to a project so economically insane that it only could have been envisioned by the type of people the British historian Paul Johnson called “Intellectuals”.

And don’t say you where not warned. Milton Friedman had warned you that forced monetary integration would cause political disunity and would be an economic disaster. He was of course right.

Bernard Connolly who wrote the book “The Rotten Heart of Europe” warned against exactly what is going on right now. Nobody wanted to listen. In fact Bernard Connolly was sacked from the European Commission in 1995 for speaking his mind.

The sacking of Bernard Connolly unfortunate is telling of lack of debate about monetary policy matters in Europe. Any opposition to the “project” is silenced. The greater “good” always comes first.

There have only been referendums about euro adoption in a few countries. In Denmark and Sweden the electorate have been wise enough to go against the “orders” of the euro establishment. As a consequence both countries today are better off than if the electorate had followed the orders of the elite and voted ‘yes’ to euro adoption.

It is easy to understand the frustration of the European voters. They have been lied to. Unfortunately the outcome is that voters across Europe now are happy to vote for parties like Front Nation, UKIP, Podemos and Syriza. I ask you the cheerleaders of the euro project – is this what you wanted?

I can only say that I can understand the Greek population’s anger over seven years of economic and social hardship and I likewise can understand that the taxpayers of Finland don’t want to pay for yet another meaningless bailout of Greece. But you should not blame each other. You should blame the European politicians who brought you into the euro.

Blame the eurocrats who never understood Hayek’s dictum from his great book “The Fatal Conceit”:

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

The euro is a fatal conceit.

UPDATE: I now have some empirical evidence that the euro is indeed a Monetary Strangulation Mechanism.

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If you want to hear me speak about these topics or other related topics don’t hesitate to contact my speaker agency Specialist Speakers – e-mail: daniel@specialistspeakers.com or roz@specialistspeakers.com.

“Now the enriched country merely declares it is insolvent and spits on Its victims.”

I can’t help of thinking of events in the 1930s when I see the headlines in the financial media these days. One thing is the geopolitical situation – another thing is the new Greek government’s attempt to negotiate a new debt deal with the EU.

To me it is striking to what extent the economic and political situation in Greece resembles that of Germany in the early 1930s. And similar the position of Germany today – both that of the German media and of the German government is very similar to the French position in the early 1930s.

In 1931 the German economy was in a deep crisis with deflation and ever mounting debt – both public and private. A rigid monetary regime – the gold standard – was strangulating the German economy – while extremist parties on the left and right became increasingly popular among voters. At the same time the position of French government was uncompromising – Germany’s problems is of her own making. The answer was more austerity and there could be no talk of a new debt deal for Germany. Nobody seemed to think there was a monetary solution.

I therefore think we can learn a lot from studying events in the early 1930s if we want to find solutions for the euro zone crisis and it might be particularly suiting for the German newspapers to take a look at what they themselves were writing in early 1930s about the French position and then compare that with what today is written in Greek newspapers about the German position today.

Or compare what the French media was saying about Germany in 1931. Just take a look at this quote:

(The French newspaper) L’Intransigeant describes Germany‘s financial methods as frankly dishonest bankruptcy. “In 1923,” it states, “Germany reduced the national debt to nothing, then borrowed abroad on short terms credit which was invested on long terms, and is thus unable to repay her creditors. Now the enriched country merely declares it is insolvent and spits on Its victims.”

I am pretty sure I could find a similar quote in the Bild Zeitung today about Greece.

I encourage my readers to have a look at the newspaper achieves from 1931 to find similarities with the situation today in regard to the relationship between France and German in 1931 and Germany and Greece today. I will be happy to publish your findings (drop me a mail at lacsen@gmail.com).

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