How To Avoid The “Zombification” Of Europe

Dr. Michael LaitmanOpinion: (George Magnus, senior economic adviser at UBS): “The main problem is that European leaders have misdiagnosed the underlying causes of the crisis, ending up with a flawed agenda and inappropriate policies. They attribute the crisis to fiscal profligacy and the lack of adequate institutional fiscal mechanisms, rather than to the large external and competitiveness imbalances between member states. So, instead of coming up with an economic and debt adjustment strategy that distributes reform responsibilities symmetrically between debtors and creditors, leaders continue single-mindedly to pledge institutionalized fiscal discipline as the solution to the crisis. They have, in effect, sealed a pro-cyclical austerity zone.

“But such ECB actions will only gain traction if political leaders are willing to go beyond their austerity-depression pact to prevent zombie economies.”

My Comment: For the time being, I don’t see the correct diagnosis of the crisis and, consequently, the right means to correct it.

Related Material:
2012: A Decisive Year For Europe
The Confusion Of Specialists
Global Economy: Is Anybody In Control?

One Comment

  1. George Magnus should know better, and so should a whole lot of other economic experts! It is both tragic and distarous that they don’t, and it may well result in such a crisis developing that soon we will be living in a state of anachey! But there are better explanations and the problem is a failure to communicate more than a lack of technical ability to understand or even to analyse what is going on.

    The diagonosis of the crisis was first made more than 130 years ago by a once famous economist, Henry George, whose ideas have been supressed. Too much was at stake for a few selfish monopolists, were his proposals to be followed. George asked why then in 1879, there was such a great difference between the rich and poor in spite of the great technological advances of that time! His answer was very simple and completely original. It was due to the way the land is not being properly used and the high cost of producing goods on the fewer parts of it that are in use.

    This situation was due to the speculation in land values by the banks and the land owners (who need to borrow from them). Land near to a city is likely to be used for development and it will increase in value due to the spread of the infrastructure. So a few years ago the land owner buys that land cheeply and then holds it unused until its price rises. This process is helped by a) investment by tax-payers in the infrastructure with help by the local government and b) scaracity of available land and the resulting competition for the right of access to it. This makes all available land to become over-priced and unattractive to entrepreneurs, so when it is taken it costs the user a lot more than it should. It should be noted that the speculator in the land value does nothing by sit around and wait for its price to rise. He/she does no useful work. When this land is held out of use the production costs that include ground-rent will be high, demand for the resulting goods low and this causes unemployment. All this while the speculators get fat from the taxes we pay!

    What George Magnus should do is to study macroeconomics, as if it were a science, by including in his modeling of the social system the effect of land ownership (and its monopoly). The only course that comes anywhere near teaching this is run by (you’ve guessed it), The Henry George School. Henry George also supplies an answer to the problem of poverty, which is still true and applicable today. It is to tax land values instead of nearly everything else. There are many advantages to this.

    Since we are discussing the subject within an atmosphere of mutual sharing and the well-being of one’s fellow, I should point out that firstly this claim does not do away with the effects of competition but accepts that this is part of our nature. (Do I hear cries of “shame!”?) Sorry but its our basic nature to compete. But secondly and of greater significance in my opinion, its is still ethical because it causes us to share the bountious opportunities provided by owning land in a place where its value is increasing by the growth of our society.

    I can supply a list of 14 aspects of the effects of Land Value Taxation of the community, most of them are beneficial and the ones that are not affect temporarily the few selfish ones whose greed is adversly being used by our unfortunate social system to slow its progress.


Discussion | Share Feedback | Ask a question Comments RSS Feed