Austrian View of the European Situation

Economics Economics Questions
1

I’ve read a lot about how Austrian economics see the recent situation in the US, Japan and China. But I’ve read very little, except the excellent discussion about “Scandinavian Socialism” about the current crisis in Europe which according to commentators like Ambrose Evans-Pritchard promises to be even worse than the US “mortgage fiasco”.

Europe suffers from a number of problems Austrians are familiar with: overregulation, high taxation, an asphytic labour market etc but has been able to “muddle through” somehow, though ever declining GDP growth rates seem to show I have been living in an stagnating economic enviroment a good part of my life. How much these growth rates reflect inflationary effects and how much real economic growth is a matter of some debate.

Currently we have a number of very large problems, mostly overlooked by our mass medias, with a devastating potential. The banking issue has already been covered in detail and needs no further comment: suffice to say everybody is now looking at large Spanish banks and holding his/her breath. The State-funded pension system is another issue: longer life expectancy, lower birth rates and the enormous political weight of retired persons’ unions (here in Italy they are the largest union by far) are probably heralding the end of the Bismarck pension system. This is the first question I’d like to ask: how can we get out of this mess? I am a strong supporter of a fully private pension system with no State interference but I somehow suspect most people feel they “entitled to something” because they’ve paid heavy taxes all their working life. Third problem is the growing gap between legislators and the economy at large, particulary the small to medium activities (of which I am part) that are pretty much the true European economic engine. Large companies write the rules together with government and unions. To give you an example how the situation is around here large companies do not even fire workers anymore: the company files for a special situation called Cassa Integrazione (CIG for short). What does it mean? Workers will be laid off for a number of weeks, months or will work much shorter shifts and Social Security will provide them with an indemnity, 50 to 80% their ordinary, union approved wage for all the time. Small business have no access to this and are the ones footing the bill. Fiscal controls have been much tightened during the past year. Last problem is the growing desperation of youth. Unless you are a genius and get hired by a large corporation for their research division, you have family money or a friend putting a good word for you at his workplace because he knows you are a good worker what can young people do today? They have been tricked into taking up useless studies (political sciences, literature etc) ill preparing them for the real world. We need nurses, mechanics, plumbers, electricians etc but our school system gives us none. Once you could start early as an apprentice for a reduced wage in exchange for training but now it’s considered child labor. And even if you have the skills many will be reluctant to hire you because you are… too expensive: according to labor laws if you are a skilled technician you must paid decent money and they need to pay taxes on top of that. They prefer hiring unqualified immigrants working for minimum wage and suffer the consequences or move their operations overseas. So you have thirty something with a BA in literature working at call centers for a shameful wage. How long can we last in a situation like this?

2

Great post, I’ve noticed a lot of this where I live too.

I’m not sure how it is in Italy, but over here, the one advantage is that a lot of young people (as compared with other countries such as the UK, USA) don’t go to university and instead start working relatively young. On the other hand, there’s a lot of bright people who go into courses such as law and economics, who would be better off elsewhere, since by the time they finish their four/ five year course they’ll find that there’s a huge number of people with the same degree. Hence the large number of unemployed lawyers. Unless you have some contacts its relatively difficult to find a well paying jobs with one of those degree, or at least, a contact gives you a huge advantage. There’s also the same problem of firing people over here, from what I know it’s relatively difficult to fire somebody who has been at the company for some time.

This said, you don’t have the same level of social decay to the same extent you do elsewhere in the world. Yet, that is.

3

That’s a good post. I think Euro-libertarians should be putting a great deal of effort into analyzing the future trends of their respective countries since Europe is the (failing) real-life model of the Third Way.

The sad truth is that with a Ponzi scheme, someone is destined to hold the bag in the end. The question is, in my opinion, not how we can escape the inevitable - nobody wants to hold the bag in the end, so nobody’s going to vote for that. Someone inevitably will, though - the real issue is not how, but whom.

I hope this is going to teach future generations a lesson on sustainability - the real, not the green one.

Workers will be laid off for a number of weeks, months or will work much shorter shifts and Social Security will provide them with an indemnity, 50 to 80% their ordinary, union approved wage for all the time

Sounds familiar. They’re all copying the bad ideas of each other, aren’t they?

They have been tricked into taking up useless studies (political sciences, literature etc) ill preparing them for the real world.

That’s a major point. If you subsidize something, you get more of it. If you subsidize the acquisition of useless knowledge, you’ll have more people with useless knowledge.

All this talk of our domestic and, I think, European leaders in general about the “knowledge society” is totally wrongheaded - it’s entirely irrelevant how many people graduate from universities as long as most of them are dependent on state-subsidized court jester jobs after that. Profitable education would also flourish without the state since companies have a vital interest in canvassing bright minds in gainful fields, offering them scholarships in exchange for several years of future employment. Not to mention that universities would be so much cheaper without all the state micro-management of education.

But then again, this opinion is often discredited as “anti-education” and “anti-culture”. As if culture originated in the airtight ivory towers of today’s liberal arts universities.

4

Here are some things we are going to learn:

30 year mortgages make no financial sense.

Mortgages over $200K make no financial sense.

College is a scam, as are the loans to finance it.

401(k)'s, IRA’s, ESOP’s, Medical Care Spending Accounts, Daycare Spending Accounts, and all the other government-sponsored tax shelters constitute a massive externality in favor of Wall Street.

5

The problem is that Euro-libertarians are few in numbers, fewer still are Austrians in Europe. I’m quite curious as to why this is actually, I suppose the only real reason I can think of write now is that after Mises went to America most of the tradition have been Americans and English speakers. I can only think of a few European Austrians off the top of my head are Hoppe and Huerta de Soto. I’m sure there are other reasons but I can’t think of any, it’s an interesting area to look into actually.

That’s definately true, but I think there’s more to it than that. I think some other influences are the facts that firstly with the welfare state and other such schemes people can afford to get such useless degrees, responsibility has largely been removed from today’s culture. Moreover, I think it’s also just a part of the general democratic, socialist, egalitarian atmosphere of today’s intellectuals, not only is pursuing such degrees as worthy as working in the market providing consumers with the goods they wish, but in some ways its better, you’re working for the state and “giving something back” to the community/ country/ state/ people.

Last summer I was reading The Economist and I came across a great piece of humour concerning Vietman, it said that basically Vietnam has liberalized its markets and is doing great, now all that is necessary is that it needs a free market in ideas, somehow this was intended to mean democracy.

I also suppose there’s a plethora of other reasons why the state wishes people to graduate from university, it keeps the most productive section of the population out of the workplace and as such out of competition with the older members of the population. It also gives the state one more chance to indoctrinate the minds of the youth with propaganda and moreover it keeps unemployment figures down.

As you say, this mentality is lost on most people. They see the reality as it is, but don’t see it as good thing, for them, what matters is not that these people are gaining skills that might be useful for the workplace but that they’re reading Plato, Hobbes and Marx. If they’re not doing that then it isn’t education and it’s not good for society. Any economics textbook will tell you that education raises the productivity of a nation but omits the fact that they are various sorts of education, if only we could get the young to read Hobbes or whatever we might be able to build more bridges.The funny thing is that many intelligent children these days aren’t learning in school but are going home and reading whatever they can get their hands on. Most of the people on this forum are a good illustration of that, they’re not learning from reading some fifth hand dealer in idea’s Macro textbook, they’re learning from reading Human Action. People seem to think without the state forcing the garbage of pseudo-intellectuals down childrens throat we’d be intellectually bankrupt.

I remember reading a while ago an interview with a LvMI scholar, I think it was Salerno, at the end he mentioned that one of the best ways forward for Austrians would be to begin teaching at an unknown university in Europe where they had more freedom and where they’d get more students, all of those who would be interested in learning economics but for whom travelling to GMU or NYU is too expensive. Huerta de Soto seems to be doing great work in Spain, teaching undergraduates from Human Action. I’ve been curious to know if there’s anywhere in Europe I could do a masters under an Austrian from sometime so the Salerno comment makes a great deal of sense to me.

I also think it’d be great to see some young Austrians from Europe starting some sort of commentary regarding the state of the European economy or whatever else. As much as I owe the LvMI, and this is no fault of the institute, it tends to be mainly focused on the USA.

6

Contact Walter Block. If you can’t find his email PM me.

I had talked to him regarding grad school at the Mises Circle in Colorado Springs, CO not too long ago. He said there are Austrians in Frane, Spain and Italy and that he could set me up with one. So if that’s something you really want to do, there you go.

: D

7

I think I’ll go with Spain, since it’s closest to home. But that’s a big help, thanks.

8

Contact Huerta de Soto. He’ll inform you regarding the Masters in Austrian econ available. I think the French programmes are mostly PHDs.

9

LOL. I thought for a second you were referring to Hernardo de Soto.

10

Christine Lagarde went on the Daily Show with Jon Stewart last night to congratulate herself for nationalizing and firing bankers. Jon Stewart then begged her to take control of America.

I nearly puked. Europe is months away from being on fire.

11

Good post. Like many in here, I feel quite lonely in here. It is not that US is full of Austrians, but at least in Spain, I feel like Greenland’s density in comparison to Hong Kong’s, or probably worse. Huerta de Soto is a reference, but I strongly doubt that in my region in the south there are nore than 2 Austrians (a friend of mine and myself).

It is difficult to talk about what is happening in Europe, basically because there are many Europes. Netherlands’ unemployment rate is 4.1%, Spain’s is 17%, just to mention one example.

Anyway, Europe is done for at least a decade, if no more. The only doubt is how this game is going to end, and who will be the only few survivors. Germany has appeared as a Phoenix reborn from ashes a couple of times so there should be some hope, and so far, some of the only few critical voices against money inflation and bailouts come from Germany. France is probably the most interventionist country, and sooner than later they will be in an worse situation. The future for Britain, Ireland, Portugal, Spain and Italy is particularly awful.

In the case of Spain, think that 17% unemployment is an average. In my region, it is 25%, more than 30% in some areas. No wonder, the socialist party has been in charge for 30 years. It is not only our huge real state bubble, it is the employment ‘protection’ system, making really expensive to fire workers and provoking and staggering 50% unemployment in some regions among people younger than 30. Health system is universal and free (of course, the kind of ‘free’ that you and me understand, but nobody wants to even think about it), pensions are a huge burden in a country becoming older and older (only the 10%+ immigrant population has lowered average age, but age pyramid is still a time bomb), optimistic figures show that more than 15/20% working population work for the government (although counting semi-public organizations and private organizations getting most of the work from government probably that figure would approach 30%) and so on.

The new appointed Minister of Territorial Politics (just the name is a good indicator of the nonsense of the government, probably Ministry of Silly Walks would be less nonsense) said yesterday that regional governments (kind of states in the US) should not worried about financing their budget as there are room for more debt. Additionally, city and village governments in an effort to get votes spend money that they don’t have promoting artificial jobs and making the debt higher and higher.

The conservative party is just a version of the socialist party, basically the same. it would be marginally better, but not a solution at all, what reminds me Hayek’s sentence: to the socialists of all parties.

Summarizing, no hope.

12

Liberalism (the Misesian kind) is virtually non-existent in Europe’s academic culture. I’m now graduating from a rather fine grammar school, and the only real liberals I’ve been hearing of are Smith (the liberal dogmatic responsible for the exploitation of factory workers, cough cough) and Schumpeter (but not on economics).

I’ve been hearing a lot about Marx, though. In fact, we spent many hours analyzing his historical materialism, social theories and economic approaches. When it came to the Industrial Revolution, my teacher bemourned the fact that people had gone to work in the factories; before that, she claimed, they’d been living “in harmony with nature”. She defended that claim even after I had graphically reminded her of the not-so-harmonic life of the peasant class.

And I’ve not even been to university yet. Sigh.

not only is pursuing such degrees as worthy as working in the market providing consumers with the goods they wish, but in some ways its better, you’re working for the state and “giving something back” to the community/ country/ state/ people.

Interestingly, this is one area where many socialists drop the class struggle rhetoric and claim that it’s something “they want” and that it’s “their life, their choice”. Giving back can be done by rich corporate pigs.

I’m really concerned, though, about this growing army of unemployed linguists, literary scholars and professional Trotskyites. Even the state can’t hire these people indefinitely. What’re they going to do once they find out that the college bubble was just that - a bubble?

The funny thing is that many intelligent children these days aren’t learning in school but are going home and reading whatever they can get their hands on.

I second that. I spent some 30 euros just to get my hands on DTGTF. It’s also frustrating to see the same fallacies being repeated in class all over again (FDR got America out of the depression, Bismarck’s welfare legislation is the reason why we’re still alive today, the West has underregulated laissez-faire capitalism …), but being unable to put an end to it even with sound reasoning.

I might as well refer to myself as a homeschooler with a high school diploma.

I remember reading a while ago an interview with a LvMI scholar, I think it was Salerno, at the end he mentioned that one of the best ways forward for Austrians would be to begin teaching at an unknown university in Europe

To be honest, I think people are much more impressed by people who put their knowledge to a monetary use (such as Peter Schiff or Jim Rogers).

Though both Hoppe and Schiff have very similar positions on economics and politics, Schiff is all over TV while Hoppe is not - because Hoppe can talk the talk, but Schiff does walk the walk. It’s easier to come up with sophisticated-sounding theories than to prove their efficiency on the market.

13

Institituto Juan de Mariana in Madrid, Spain

http://www.juandemariana.org/

14

That was interesting. I don’t know how to read spanish, but I saw some familiar faces about half-way down the page. I also saw some recognizable names flash with the faces from time to time. Also on the left side column I saw Ron Paul’s name.

15

Thanks for your kind replies. It took me quite a while to read them all and metabolize the contents.

I’d like to address the issue of European libertarians first. Two years ago I went to a secessionist meeting and there was a stand run by Italian-speaking libertarians. They had piles of Rothbard’s What has Government done to our Money? and Hoppe’s Democracy: the God that failed for sale in their Italian versions. I asked the fellow running the stand if he knew about the LvMI and their extraordinary educating activity and he told me that he was aware of its existence but couldn’t read the website… because he spoke no foreign language! The situation got worse when I asked him if he ever read anything from Mises himself… “No, and I won’t until there will be an Italian translation”. Of course a few selected titles from Mises were translated back in the '70s and ‘80s but they’ve become collectors’ items now. That’s how bad our situation is.

On the issue of economics I think the US is a step ahead of US. Obama and his entourage may be the worst thing to happen to US economics since Roosevelt but at least they are cautious, they pick their words carefully, they admit there are still plenty of problems to face before the crisis is over. Here we just have a band of cheerleaders who keep saying “the worst’s over, we are out of it now, go out and be happy!” even in the face of macroeconomic datas showing the devasting blows our manufacturing sector is taking month after month. I had to turn to the Internet to learn that Spanish banks are pretty much bankrupt and will need large infusions of government money to stay afloat should the ECB approve the move: nobody is reporting this, not even economic newspapers. And ordinary people want to believe these scamsters to the point of ignoring the truth under their eyes, for example the almost complete disappearance of freight trucks from the roads. Economic ignorance is so widespread that a recent statement by a EU commissar, rightly asking were FIAT (occasionally they get something right), a company riddled with debts and heavily subsidized by the Italian government, will find the money to take over and restructure Chrysler and perhaps even acquire Opel from GM, sparkled an orgy of nationalism. For once a EU bureaucrat says something making sense and he gets bashed…

16

In my opinión, the best young economist is Juan Ramón Rallo. He is usually crystal clear in his analysis. Rallo is one of the authors of the wonderful study on green jobs directed by Gabriel Calzada discussed in http://blog.mises.org/archives/009748.asp

Also, you can find an article on mises.org: http://mises.org/daily/3251

There are some others, and some sites such as liberalismo.org or libertaddigital.com, although sometimes -many- are closer to Cato Institute than to an Austrian view.

17

Sadly, the world over is either fascist or socialist or some combination thereof. I think supporting libertarian media is really the only thing we can do to make a difference.

18

I just noticed that, on the top-right corner of the website, there is a link to the English-language version of the website. This institute is a mini Mises Institute, but in Spain and it seems as if all the articles and other content is original, as in, not translations of English-speaking Austrians (not including books).

19

hmm, original work, straight out of Spain, now that’s very, very interesting! Cool. Thank you very much for pointing out the English translation link. I bookmarked the page, and I think when I have a moment I’ll check it out and see what’s up. I always love a different perspective especially from other countries! This is so great…[H]