3 thoughts on “The EU needs supply-side reform”

  1. Posted 02/02/2015 at 12:45 | Permalink

    The EU rejects supply side economics because it would require governments to reduce spending and reduce taxes in order to stimulate investment. No surprise there then.

    QE would, by the purchase of sovereign bonds stimulate governments’ spending and exacerbate the problem.

    At some point they will have to understand that the more governments spend the more entrepreneurs will be dissuaded to take risks and invest in new projects as a result of the high rate of taxes.

    The UK already suffers this problem and as a result of past government actions is full of foreign owned mature businesses that generate cash but little else.

  2. Posted 02/02/2015 at 22:11 | Permalink

    Deregulation the way to go?

    That is the mantra that was all pervasive before the Great Recession, especially in the financial services sector. This freedom to create credit by banking institutions led, as Von Mises predicted it would to gross mis-allocation of resources.

    The UK has continued to see significant growth in unregulated or informal financial institutions such as hedge funds and private equity firms, which are not subject to the same rules that the FCA imposes on the formal banking institutions.

    It was in this regulatory black hole both within and between the lightly regulated and non-regulated that the financial innovators stepped with their exotic financial instruments during the period of expansion. These were a significant additional cause of the financial crisis in both the UK and the US. It should also be remembered that it was the more formal financial institutions, which were up to their necks in the property market lending boom too in the UK, US, Spain and Ireland. It was the commercial property market speculation which was the major cause of this. Just witness the valuations put on sites like Battersea Power Station. We are all still paying for this.

    European economies that have a reputation for their more strict interpretation, application and enforcement of regulations suffered much shorter and less deep recessions that either the UK, or the US, despite all of them being Euro zone economies and the UK not. The UK’s overall debt pile does not compare favourably either, despite our deregulated economy. The UK financial services industry, along with its European equivalents continues to be an extremely inefficient manager and allocator of people’s pensions, despite its deregulation. Deregulation failed to protect people from the mis-selling of private pensions in the 1980s.

    It is right to point out that the Junker plan is ambitious in its private sector investment target. There may be some scope for specific, targeted, moderate deregulation in certain economies. Nirvana it will never be. Neither the Junker investment plan, nor any deregulation will be themselves sufficient for the scale of the problem faced to stimulate growth in the European economy, less still TTIP. Austerity has been tried and has failed.It chokes of demand and stifles economies.

    The key priority has to be to sort out a more realistic debt repayment framework for the baled out countries, such as the 1953 debt forgiveness package agreed for Germany in London. The troika and Germany in particular have to get it on with these deeply indebted countries. The new debt repayment framework must be accompanied by measures to stimulate demand led growth.

  3. Posted 03/02/2015 at 08:54 | Permalink

    Fleche_dor
    Nothing screams deregulation and freedom like fiat money/ legal tender laws and a state monopoly central bank backed at gunpoint.

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