I continue to hear the voices of European extremist politicians and labour union leaders insisting ad nauseam that the recent economic crisis has to be ascribed solely to the reckless behaviour of bankers. It sounds pretty much like some of the kind of science you get these days: mediocre researchers manipulating data to accommodate their a priori view of the world. Right down misleading, not to use any stronger word.
Reality is that, in order to gain votes, Socialist governments all over Europe had to create the illusion of prosperity. In the absence of the real thing, they opted for a gigantic increase in public debt, so they could have an array of free services: education, health, unemployment benefits, etc. Not to talk of the jobs created specifically for the party members. In some cases, the weight of the State on GDP went up to around 48%, if not more, which is hardly sustainable. As the cost of servicing the debt became higher, so did taxation. The erosion of middle-class and the of small entrepreneurship became only too apparent. The economy began bleeding jobs and the State income from direct and indirect taxation consequently diminished, which only came to compound the problem.
Allow me to go back a little. In an environment of general economic euphoria, institutions and people have a tendency to increase their risk tolerance. So they leverage themselves (read take on debt) in the false belief that the economy will continue to improve forever and that they will be able to go on meeting their obligations. Call it greed. People in Africa and South America hear about this prosperity and the migratory flux begins in all earnest.
Eventually reality dawns on everybody. The State increases taxes and cuts back on benefits. Businesses go bankrupt. Joblessness grows. Previous excessive immigration puts an extra burden on unemployment benefits. Foreign lenders demand an extra premium for loans made to the State and to the banks. Chaos ensues.
The deleveraging process has begun. It's a painful. Austerity replaces what, in the first place, should have been economic prudence. Governments print money. Banks cut on loans and try to sort out bad debt. Individuals lose expensive cars and luxury houses which they should have never owned to start with. Everybody is unhappy. Call it fear.
Strikes and riots on the streets encouraged by extremist politicians will not change reality. Time will, if good sense prevails.
You see, Socialism is the light version of Communism. It's a bit like smoking. In the beginning, it tastes good. Eventually, whether you go for traditional cigarettes or their light version, you will still end up with cancer.
