Wednesday, August 5, 2009

My Trip to the European Parliament

I recently made my second trip to speak at the European Parliament. Last year I spoke in Brussels to a committee on international development about the benefits of sound money for developing countries. This year I spoke in Strasbourg, France as part of a panel of three Austrian School economists, representing the Right Approach Group, which seeks market solutions to current economic problems. Now, just consider these first two lines. Yes, the European Parliament, which is just one branch of the many-tentacled European Government, has two offices—one in Brussels and one in Strasbourg. This fact alone illustrates why the organization is unpopular with the European taxpayer—it spends too much money on itself.

Last year I was wowed by the size and beauty of the Parliament’s offices in Brussels. It is a modern masterpiece of architecture—lots of glass, huge open areas, vast meeting halls, multiple cafeterias and coffee shops, not to mention the hundreds, perhaps thousands, of offices for the members, their staffs, and the unionized civil service. The office complex in Strasbourg is the same—vast, beautiful, and busy. But busy doing what? Well, for one thing, moving. Each month the entire European government moves from its main offices in Brussels to Strasbourg for one week. The cost of this move is enormous. Twice each month the members and their staffs must pack and ship files and other official documents, then travel and reside at significant expense in another city. Strasbourg is much smaller than Brussels, so the prices of hotels rise to reflect the increased demand. And we have not even touched the cost of lost productivity—which assumes, of course, that one believes that something beneficial to Europe really comes out of its alleged continental government. This is the elephant in the living room--does Europe really need a continental government?

The history of the European project is, as are more things than we like to admit, an outgrowth of the two world wars of the twentieth century. After the Second World War, there was real concern that Germany could threaten the peace a third time. Today we may view this concern with incomprehension, but one must look at the facts and the temper of the times. Few statesmen after World War One—called the Great War and the War to End All Wars--believed that Germany intended to restart hostilities or was capable of doing so. Did not the French, for one thing, have the finest army in Europe? France’s great wartime leader, Georges Clemenceau, was one of the few who saw the danger, but his warnings were ignored in favor of worthless arms reduction treaties.

The first step on the road to creating a European government was the formation of the European Coal and Steel Community. Its organizers were very clear that they believed that Germany must not be allowed to become self-sufficient in these two key industrial sectors. It was Germany’s attempt at autarky, meaning self-sufficiency in key economic areas, which made it believe that it could wage “Blitzkrieg War” before its key supplies were embargoed. The allies were determined to prevent this from happening. So Germany’s industrial capacity was made dependent upon foreign-controlled resources.

Over the decades a new agenda--or, rather, multiple agendas--appeared. On the one hand, there emerged a liberal (in the good, classical sense of the word) agenda to erect a large, free trade zone among European countries. The obvious example was that of the United States. Its states exercised no control over interstate commerce. Goods and people could travel freely across state borders. This had given the United States a tremendous advantage in costs and efficiencies. The people of the United States were much more willing to move to a new state to secure a better life, rather than stoically acquiesce in the decline of regional industries. Our common heritage, language, culture, and money made starting a new life in another state less costly and less fearful. Not so in Europe. Just imagine if Pennsylvania and New York were separate countries, whose citizens spoke different languages, required passports for people to travel between them, and charged duties on trade goods. This was the case in Europe. It is a triumph of liberalism that there now are no physical barriers of any kind within the EU. Only a few lonely and abandoned guard shacks remain on some intra-European borders.

So far, so good. But another, more grandiose agenda arose—political integration that would weaken each nation’s sovereignty. To some extent this has been achieved. The Euro—the European Union’s standard money—is administered and controlled by the European Central Bank (ECB), a supposedly independent entity. Although it is just as susceptible to political pressure as is our Federal Reserve Bank, no nation in the Euro Zone (not all EU members are in the Euro Zone) has total control of the ECB. Furthermore, the EU has managed to impose many standard economic regulations on its members and it has been partially successful in standardizing taxation throughout the EU. The purpose of tax standardization is to prevent shifts of business headquarters from high tax countries to low tax countries within the EU. Moving headquarters is very easy to do now that there is relatively free movement of people and goods throughout the EU. But the “tax equalization” movement became a cover for closing the door to the few tax havens that remained in Europe. At one of the large worldwide economic summits recently, French President Nicholas Sarkozy called for the world to close down tax havens in places like the Cayman Islands. So the real purpose of tax equalization is to fleece business everywhere on the planet in order to prevent European headquartered companies from escaping Europe’s onerous taxation.

The downside of all this, as the so-called “Euro Skeptics” claim, is that the EU has become a giant protectionist zone which greatly restricts trade outside its borders and engages in massive transfer payments within it borders. Half of the EU budget goes to farm subsidies, and they are a constant source of controversy. My wife and I had a front row seat to one incident. Our hotel in Strasbourg was only a few minutes’ walk from the EU complex, on a broad avenue that led to the beautiful heart of the city, about two miles away. The farm lobby held a demonstration by marching from the downtown area to the Parliament. The demonstrators chanted slogans, carried signs, drove tractors, and even herded a few reluctant cows. That evening the “France 24 English” television station explained that the farmers want their milk subsidies increased, because the price of milk is so low. One member of the Parliament voiced his support. Apparently he had no conception of basic economics; to wit, subsidies encourage production, and more production lowers the market price. Increasing subsidies would encourage even more production and cause the price to go even lower. Ah, well, we Americans cannot take the moral high ground here, with our own outrageous farm subsidies. Furthermore, like America, the EU blocks imports of cheap food from its poorer neighbors. We Americans block cheap sugar cane imports form dirt poor Caribbean nations, while Europe blocks farm products from Africa. Taxpayers on both continents not only get the honor of paying higher prices for food staples, but we also get the honor of propping up tyrannical and corrupt regimes through our foreign aid. Were these countries allowed to trade freely with their richer neighbors, conditions would be established for the creation of a middle class that eventually would demand more representative and more honest governments.

On the TGV from Charles de Gaulle Airport, just outside of Paris, to Strasbourg I met Paul Nuttall, a newly elected member of the European Parliament, and enjoyed a good hour’s conversation with him. Paul is a member of the United Kingdom Independence Party (UKIP), whose members are Euro Skeptics. Actually they are much more than skeptical of the necessity of the EU—they want Britain to resign from the EU. (In the very complex nature of EU structure, Britain is an EU member but it doesn’t use the Euro—it has kept the Pound Sterling, which is administered by the Bank of England.) Paul explained that EU membership meant that Britain could not freely import products from members of the British Commonwealth, such as Canada. The EU may be a free trade zone internally, but it has high tariffs against non-EU countries. The UKIP members see this as a bad deal; that is, cutting centuries’ old free trade ties with Commonwealth countries in order to pay higher prices for EU products. Furthermore, the leading EU nations, such as France, make no secret of their desire to free themselves from American military and diplomatic dominance. This is understandable and even laudable; there is no reason that the EU, whose GDP is roughly twenty-five percent greater than America’s, should be subservient to anyone. But Britain has a time-honored “special relationship” with America that was solidified in the Second World War. Many in Britain would rather be a junior partner whose voice is, nevertheless, taken seriously in Washington than an “Anglo-Saxon” outsider to a Franco-German dominated Europe.

My talk went well. The audience was attentive, as confirmed by the excellent participation in the Q&A session at the end. I was on three-person panel of Austrian School economists. Our twin goals were to educate and form alliances—educate potential allies in Austrian School principles so as to encourage them to use their influence to adopt sound economic policies. We met with mixed success, but better to speak to a skeptical group with some power than to preach to a choir who has none. As enjoyable as are my talks to those already friendly to Austrian School principles, we must face facts that we are outnumbered by the Keynesians in the halls of power. These are the people who must be presented with the likely consequences of their well-intended but disastrous actions. My points were simple—the actions of the past year to debase money, stimulate the economy, re-regulate the economy, and bail out failed industries must be repealed. The window of opportunity to do so is rapidly closing. The excess reserves injected into the banking system have not been leveraged, via the fractional reserve banking system, into massive amounts of new money media…yet. Only a small percentage of the stimulus package has been spent…yet. There is still time to prevent onerous and foolish new regulations on the financial system. And the bailouts must stop. The other two speakers—Professor Jorg Guido Hulsmann of the University of Angers and Dr. Thorsten Polleit of the Frankfurt School of Management—made similar points. Professor Hulsmann explained that Mercantilism was rising under a new name—Keynesianism--but it is the same, old, and discredited theories from before the industrial revolution wrapped in new garb. Dr. Polleit pointed out that proper policies to correct economic problems must be based upon a proper perception of the causes of the current crisis. Unfortunately, the world is under the impression that past government interventions not only did not cause the crisis, but that it was weak government oversight that allowed freely acting individuals to trash the system; therefore, more oversight is required. This is completely backward, and Dr. Polleit explained why.

Was anyone convinced? Maybe. I have received some emails from MEPs (Members of the European Parliament) who are interested in learning more. This is a start. Rome wasn’t built in a day and it didn’t collapse in a day. But the response of all industrial nations to our current crisis cannot work and will make things worse. The world needs to know why, and I, for one, will keep explaining why to anyone who will listen.

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