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Can We
Still Avoid
Inflation?
Friedrich
A. Hayek
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In one sense the question
asked in the title of this lecture is
purely rhetorical. I hope none of you has suspected me of doubting even
for a
moment that technically
there
is no problem in stopping inflation. If the monetary authorities really
want to
and are prepared to accept the consequences, they can always do so
practically
overnight. They fully control the base of the pyramid of credit, and a
credible
announcement that they will not increase the quantity of bank notes in
circulation and bank deposits, and, if necessary, even decrease them,
will do
the trick. About this there is no doubt among economists. What I am
concerned
about is not the technical but the political possibilities.
Here,
indeed, we face a task so difficult that more and more people,
including highly
competent people, have resigned themselves to the inevitability of
indefinitely
continued inflation. I know in fact of no serious attempt to show how
we can
overcome these obstacles which lie not in the monetary but in the
political
field. And I cannot myself claim to have a patent medicine which I am
sure is
applicable and effective in the prevailing conditions. But I do not
regard it
as a task beyond the scope of human ingenuity once the urgency of the
problem
is generally understood. My
main aim tonight is to bring out clearly why we must stop inflation if
we are
to preserve a viable society of free men. Once this urgent
necessity is
fully understood, I hope people will also gather the courage to grasp
the hot
irons which must be tackled if the political obstacles are to be
removed and we
are to have a chance of restoring a functioning market economy.
In
the elementary
textbook accounts, and probably also in the public mind generally, only
one
harmful effect of inflation is seriously considered, that on the
relations
between debtors and creditors. Of course, an unforeseen
depreciation of
the value of money harms creditors
and benefits debtors.
This is important
but by no means the most important effect of inflation. And
since it is the creditors who are harmed and the debtors who benefit,
most
people do not particularly mind, at least until they realize that in modern society the most
important and numerous class of creditors are the wage and salary
earners and
the small savers, and the representative
groups of
debtors who profit in the first instance are the enterprises and credit
institutions. |
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But I do not want to dwell too
long on this most familiar
effect of inflation which is also the one which most readily corrects
itself.
Twenty years ago I still had some difficulty to make my students
believe that
if an annual rate of price increase of five per cent were generally
expected,
we would have rates of interest of 9-10 per cent or more. There still
seem to
be a few people who have not yet understood that rates of this sort are
bound
to last so long as inflation continues. Yet, so long as this is the
case, and
the creditors understand that only part of their gross return is net
return, at
least short
term lenders
have comparatively little ground for complaint—even though long term
creditors,
such as the owners of government loans and other debentures, are partly
expropriated.
<>There
is, however, another more devious aspect of this process
which I must at least briefly mention at this point. It
is that it upsets the reliability of all
accounting practices and is bound to show spurious profits much in
excess to
true gains. Of course, a wise manager could allow for this also,
at
least in a general way, and treat as profits only what remains after he
has
taken into account the depreciation of money as affecting the
replacement costs
of his capital. But
the
tax inspector will not permit him to do so and insist on taxing all the
pseudo-profits.
Such taxation is simply confiscation of some of the
substance of capital, and in the case of a rapid inflation may become a
very
serious matter.
But all
this is familiar ground—matters of which I merely
wanted to remind you before turning to the less conspicuous but, for
that very
reason, more dangerous effects of inflation.
The whole conventional analysis
reproduced in
most
textbooks proceeds as if a rise in average prices meant that all prices
rise at
the same time by more or less the same percentage, or that this
at least
was true of all prices determined currently on the market, leaving out
only a
few prices fixed by decree or long term contracts, such as public
utility
rates, rents and various conventional fees. But this is not true or
even
possible.
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The
crucial point is
that so long as the flow of money expenditure continues to grow and
prices of
commodities and services are driven up, the different prices must rise,
not at
the same time but in succession, and that in consequence, so long as
this
process continues, the prices which rise first must all the time move
ahead of
the others. This distortion of the whole price structure will disappear
only
sometime after the process of inflation has stopped. This is a fundamental point
which the
master of all of us, Ludwig von Mises, has never tired from emphasizing
for the
past sixty years. It seems nevertheless necessary to dwell upon it at
some
length since, as I recently discovered with some shock, it is not
appreciated
and even explicitly denied by one of the most distinguished living
economists.
[1]
That the
order in which a continued increase in the money
stream raises the different prices is crucial for an understanding of
the
effects of inflation was clearly seen more than two hundred years ago
by David
Hume—and indeed before him by Richard Cantillon. It was in order
deliberately
to eliminate this effect that Hume
assumed as a first approximation that one morning every citizen of
a country woke up to find the stock of money in his possession
miraculously doubled.
Even this would not really lead to an immediate rise of all prices by
the same
percentage.
But it is not what
ever really happens. The influx of the additional money into the system
always
takes place at some particular point. There will always be some people
who have
more money to spend before the others. Who these people are will
depend
on the particular manner in which the increase in the money stream is
being
brought about. It may be spent in the first instance by government on
public
works or increased salaries, or it may be first spent by investors
mobilizing
cash balances or borrowing for the purpose; it may be spent in the
first
instance on securities, on investment goods, on wages or on consumer's
goods.
It will then in turn be spent on something else by the first recipients
of the
additional expenditure, and so on. The process will take very different
forms
according to the initial source or sources of the additional money
stream; and
all its ramifications will soon be so complex that nobody can trace
them. But
one thing all these different forms of the process will have in common:
that
the different prices
will rise, not at the same time but in succession, and that so long as
the
process continues some prices will always be ahead of the others and
the whole structure of relative prices therefore very different from
what the
pure theorist describes as an equilibrium position.
There will always exist what might be
described as a prices gradient in favor of those commodities and
services which
each increment of the money stream hits first and to the disadvantage
of the
successive groups which it reaches only later—with the effect that what
will
rise as a whole will not be a level but a sort of inclined plane—if we
take as
normal the system of prices which existed before inflation started and
which
will approximately restore itself sometime after it has stopped.
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To
such a change in
relative prices, if it has persisted for some time and comes to be
expected to
continue, will of course correspond a
similar change in
the allocation of resources: relatively more will be produced of the
goods and
services whose prices are now comparatively higher and relatively less
of those
whose prices are comparatively lower. This redistribution of the productive
resources will evidently
persist so long, but only so long, as inflation continues at a given
rate. We
shall see that this inducement to activities, or a volume of some
activities,
which can be continued only if inflation is also continued, is one of
the ways
in which even a contemporary inflation places us in a quandary because
its
discontinuance will necessarily destroy some of the jobs it has created.
But before
I turn to those consequences of an economy adjusting
itself to a continuous process of inflation, I must deal with an
argument that,
though I do not know that it has anywhere been clearly stated, seems to
lie at
the root of the view which represents inflation as relatively harmless.
It
seems to be that, if future prices are correctly foreseen, any set of
prices
expected in the future is compatible with an equilibrium position,
because
present prices will adjust themselves to expected future prices. For
this it
would, however, clearly not be sufficient that the general level of
prices at
the various future dates be correctly foreseen, and these, as we have
seen,
will change in different degrees.
The
assumption that the
future prices of particular commodities can be correctly foreseen
during a
period of inflation is probably an assumption which never can be true: because, whatever future
prices are
foreseen, present prices do not by themselves adapt themselves to the
expected
higher prices of the future, but only through a present increase in the
quantity of money with all the changes in the relative height of the
different
prices which such changes in the quantity of money necessarily involve.
More
important, however, is the fact that if future prices were
correctly foreseen, inflation would have none of the stimulating
effects for
which it is welcomed by so many people.
Now
the chief effect of
inflation which makes it at first generally welcome to business is
precisely
that prices of products turn out to be higher in general than foreseen.
It is
this which produces the general state of euphoria,
a false sense of wellbeing, in which everybody seems to prosper. Those
who
without inflation would have made high profits make still higher ones.
Those
who would have made normal profits make unusually high ones. And not
only
businesses which were near failure but even some which ought to fail
are kept
above water by the unexpected boom. |
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There
is a general excess of demand over
supply—all is saleable and everybody can continue what he had been
doing. It
is
this seemingly blessed state in which there are more jobs than
applicants which
Lord Beveridge defined as the state of full employment—never
understanding that
the shrinking value of his pension of which he so bitterly complained
in old
age was the inevitable consequence of his own recommendations having
been followed.
But,
and this brings me to
my next point, "full
employment" in his
sense requires not only continued inflation but inflation at a growing
rate. Because,
as we have seen, it will have its immediate beneficial effect only so
long as
it, or at least its magnitude, is not foreseen. But once it has continued for some time, its
further
continuance comes to be expected. If prices have for some time been
rising at
five percent per annum, it comes to be expected that they will do the
same in
the future.
Present prices
of factors are driven up by the expectation of the higher prices for
the
product—sometimes, where some of the cost elements are fixed, the
flexible
costs may be driven up even more than the expected rise of the price of
the
product—up to the point where there will be only a normal profit.
But
if prices then do not
rise more than expected, no extra profits will be made. Although prices
continue to rise at the former rate, this will no longer have the
miraculous
effect on sales and employment it had before. The artificial gains will
disappear, there will again be losses, and some firms will find that
prices
will not even cover costs.
To maintain the effect inflation had earlier when its full extent was
not
anticipated, it will have to be stronger than before. If at first an
annual
rate of price increase of five percent had been sufficient, once five
percent
comes to be expected something like seven percent or more will be
necessary to
have the same stimulating effect which a five percent rise had before.
And
since, if inflation has already lasted for some time, a great many
activities
will have become dependent on its continuance at a progressive rate, we
will
have a situation in which, in spite of rising prices, many firms will
be making
losses, and there may be substantial unemployment. Depression with
rising
prices is a typical consequence of a mere braking of the increase in
the rate
of inflation once the economy has become geared to a certain rate of
inflation.
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All
this means that,
unless we are prepared to accept constantly increasing rates of
inflation which
in the end would have to exceed any assignable limit, inflation can
always give
only a temporary fillip to the economy, but must not only cease to have stimulating
effect but will
always leave us with a legacy of postponed adjustments and new
maladjustments
which make our problem more difficult. Please note that I am not saying
that
once we embark on inflation we are bound to be drawn into a galloping
hyper-inflation. I do not believe that this is true. All
I am contending is that if we wanted to perpetuate
the peculiar prosperity-and-job-creating effects of inflation we would
have
progressively to step it up and must never stop increasing its rate.
That this
is so has been empirically confirmed by the Great
German inflation of the early 1920s. So long as that increased at a
geometrical
rate there was indeed (except towards the end) practically no
unemployment. But
till then every time merely the increase of the rate of inflation
slowed down,
unemployment rapidly assumed major proportions. I do not believe we
shall
follow that path—at least not so long as tolerably responsible people
are at
the helm—though I am not quite so sure that a continuance of the
monetary
policies of the last decade may not sooner or later create a position
in which
less responsible people will be put into command. But this is not yet
our
problem.
What we
are experiencing is still only what in Britain
is known as the
"stop-go" policy in which from time to time the authorities get
alarmed and try to brake, but only with the result that even before the
rise of
prices has been brought to a stop, unemployment begins to assume
threatening
proportions and the authorities feel forced to resume expansion.
This
sort of thing may go on for quite some time, but I am not sure that the
effectiveness of relatively minor doses of inflation in rekindling the
boom is
not rapidly decreasing. The one thing which, I will admit, has
surprised me
about the boom of the last twenty years is how long the effectiveness
of
resumed expansion in restarting the boom has lasted. |
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My
expectation was that
this power of getting investment under way by a little more credit
expansion
would much sooner exhaust itself—and it may well be that we have now
reached
that point.
But I am not sure. We may well have another ten years of stop-go policy
ahead
of us, probably with decreasing effectiveness of the ordinary measures
of
monetary policy and longer intervals of recessions. Within the
political
framework and the prevailing state of opinion the present chairman of
the
Federal Reserve Board will probably do as well as can be expected by
anybody.
But the limitations imposed upon him by circumstances beyond his
control and to
which I shall have to turn in a moment may well greatly restrict his
ability of
doing what we would like to do.
<>On an earlier occasion on which
several of you were present, I
have compared the position of those responsible for monetary policy
after a
full employment policy has been pursued for some time to "holding a
tiger
by the tail." It seems to me that these two positions have more in
common
than is comfortable to contemplate. Not only would the tiger tend to
run faster
and faster and the movement bumpier and bumpier as one is dragged
along, but
also the prospective effects of letting go become more and more
frightening as
the tiger becomes more enraged. That one is soon placed in such a
position is
the central objection against allowing inflation to run on for some
time.
Another metaphor that has often been justly used in this connection is
the
effects of drug-taking. The early pleasant effects and the later
necessity of a
bitter choice constitute indeed a similar dilemma. Once placed in this
position
it is tempting to rely on palliatives and be content with overcoming
short-term
difficulties without ever facing the basic trouble about which those
solely
responsible for monetary policy indeed can do little.
Before I
proceed with this main point, however, I must still
say a few words about the alleged indispensability of inflation as a
condition
of rapid growth. We shall see that modern developments of labor union
policies
in the highly industrialized
countries may there indeed have created a position in which both growth
and a
reasonably high and stable level of employment may, so long as those
policies
continue, make inflation the only effective means of overcoming the
obstacles
created by them.
But this
does not mean that inflation is, in normal conditions,
and especially in less developed countries, required or even favorable
for
growth. None of the great industrial
powers of the modern world has reached its position in periods of
depreciating
money. British prices in 1914 were, so far as meaningful comparisons
can be
made over such long periods, just about where they had been two hundred
years
before, and American prices in 1939 were also at about the same level
as at the
earliest point of time for which we have data, 1749. |
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Though
it is largely
true that world history is a history of inflation, the few success
stories we
find are on the whole the stories of countries and periods which have
preserved
a stable currency; and in the past a deterioration of the value of
money has
usually gone hand in hand with economic decay.
There
is of course, no
doubt that temporarily the production of capital goods can be increased
by what
is called "forced saving"—that is, credit expansion can be used to
direct a greater part of the current services of resources to the
production of
capital goods. At the end of such a period the physical quantity of
capital
goods existing will be greater than it would otherwise have been. Some
of this
may be a lasting gain—people may get houses in return for what they
were not
allowed to consume. But I am not so sure that such a forced growth of
the stock
of industrial equipment
always makes
a country richer, that is, that the value of its capital stock will
afterwards
be greater—or by its assistance all-round productivity be increased
more than
would otherwise have been the case.
If
investment was guided by the expectation of a higher rate of
continued investment (or a lower rate of interest, or a higher rate of
real
wages, which all come to the same thing) in the future than in fact
will exist,
this higher rate of investment may have done less to enhance overall
productivity than a lower rate of investment would have done if it had
taken
more appropriate forms.
This I
regard as a particularly serious danger for
underdeveloped countries that rely on inflation to step up the rate of
investment. The regular effect of this seems to me to be that a small
fraction
of the workers of such countries is equipped with an amount of capital
per head
much larger than it can hope within the foreseeable future to provide
for all
its workers, and that the investment of the larger total in consequence
does
less to raise the general standard of living than a smaller total more
widely
and evenly spread would have done. Those
who counsel underdeveloped countries to speed up the rate of growth
by inflation seem to me wholly irresponsible to an almost criminal
degree. The
one condition which, on Keynesian assumptions, makes inflation
necessary to
secure a full utilization of resources, namely the rigidity of wage
rates
determined by labor unions, is not present there. And nothing I
have
seen of the effects of such policies, be it in South America, Africa,
or Asia,
can change my conviction that in such countries inflation is entirely
and
exclusively damaging—producing a waste of resources and delaying the
development of that spirit of rational calculation which is the
indispensable
condition of the growth of an efficient market economy. |
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The
whole Keynesian
argument for an expansionist credit policy rests entirely and
completely on the
existence of that union determined level of money wages which is
characteristic
of the industrially advanced
countries of the West but is absent in underdeveloped countries—and for
different reasons less marked in countries like Japan and Germany. It
is only
for those countries where, as it is said, money wages are "rigid
downward" and are constantly pushed up by union pressure that a
plausible
case can be made that a high level of employment can be maintained only
by
continuous inflation—and I have no doubt that we will get this so long
as those
conditions persist.
What has happened here at the end of the last war has been that
principles of
policy have been adopted, and often embodied in the law, which
in effect release unions
of all responsibility for the unemployment their wage policies may
cause and
place all responsibility for the preservation of full employment on the
monetary and fiscal authorities. The latter are in effect required to
provide
enough money so that the supply of labor at the wages fixed by the
unions can
be taken off the market.
And since
it cannot be denied that at least for a period of
years the monetary authorities have the power by sufficient inflation
to secure
a high level of employment, they will be forced by public opinion to
use that
instrument. This
is the
sole cause of the inflationary developments of the last twenty-five
years, and
it will continue to operate as long as we allow on the one hand the
unions to
drive up money wages to whatever level they can get employers to
consent to—and
these employers consent to money wages with a present buying power
which they
can accept only because they know the monetary authorities will partly
undo the
harm by lowering the purchasing power of money and thereby also the
real
equivalent of the agreed money wages.
This is
the political fact which for the present makes
continued inflation inevitable and which can be altered not by any
changes in
monetary but only by changes in wage policy. Nobody should have any
illusion
about the fact that so long as the present position on the labor market
lasts
we are bound to have continued inflation.
Yet
we cannot afford this,
not only because inflation becomes less and less effective even in
preventing
unemployment, but because after it has lasted for some time and comes
to
operate at a high rate, it begins progressively to disorganize the
economy and
to create strong pressure for the imposition of all kinds of controls. Open
inflation is bad enough, but inflation repressed by controls is even
worse: it
is the real end of the market economy.
The hot iron which we must
grasp if we are to preserve the
enterprise system and the free market is, therefore, the power of the
unions
over wages. Unless
wages,
and particularly the relative wages in the different industries, are
again
subjected to the forces of the market and become truly flexible, in
particular
groups downwards as well as upwards, there is no possibility for a
non-inflationary policy.
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A very simple consideration
shows that, if no
wage is allowed to fall, all the changes in relative wages which become
necessary must be brought about by all the wages except those who tend
to fall
relatively most being adjusted upwards. This means that practically all
money
wages must rise if any change in the wage structure is to be brought
about. Yet
a labor union conceding a reduction of the wages of its members appears
today
to be an impossibility. Nobody, of course, gains from this situation,
since the
rise in money wages must be offset by a depreciation of the value of
money if
no unemployment is to be caused. It seems, however, a built-in
necessity of
that determination of wages by collective bargaining by industrial or craft unions plus a full employment
policy.
I
believe that so long
as this fundamental issue is not resolved, there is little to be hoped
from any
improvement of the machinery of monetary control. But this does not mean that the existing
arrangements are satisfactory. They have been designed precisely to
make it
easier to give in to the necessities determined by the wage problem,
i.e., to
make it easier for each country to inflate. The
gold standard has been destroyed chiefly because it
was an obstacle to inflation.
When in
1931 a few days after the suspension of the gold
standard in Great Britain Lord Keynes wrote in a London newspaper that
"there are few Englishmen who do not rejoice at the breaking of our
gold
fetters," and fifteen years later could assure us that Bretton Woods
arrangements were "the opposite of the gold standard," all this was
directed against the very feature of the gold standard by which it made
impossible any prolonged inflationary policy of any one country. And
though I am not sure that
the gold standard is the best conceivable arrangement for that purpose,
it has
been the only one that has been fairly successful in doing so.
It
probably has many defects, but the reason for which it has been
destroyed was
not one of them; and what has been put into its place is no
improvement. If, as
I have recently heard it explained
by one of the members of the original Bretton Woods group, their aim
was to
place the burden of adjustment of international balances exclusively on
the
surplus countries, it seems to me the result of this must be continued
international inflation. But I only mention this in conclusion
to show
that if we are to avoid continued world-wide inflation, we need also a
different international monetary system. Yet the time when we can
profitably
think about this will be only after the leading countries have solved
their
internal problems. Till then we probably have to be satisfied with
makeshifts,
and it seems to me that at the present time, and so long as the
fundamental
difficulties I have considered continue to be present, there is no
chance of
meeting the problem of international inflation by restoring an
international
gold standard, even if this were practical policy. The central problem
which
must be solved before we can hope for a satisfactory monetary order is
the
problem of wage determination.
This essay was originally given as a lecture before the
Trustees and guests of the Foundation for Economic Education at
Tarrytown, New
York on May 18, 1970, and was first published in the first edition of
this
book
[1] [See Professor Hayek's criticism of Sir
John Hicks in his article, "Three Elucidations of the Ricardo Effect,"
Journal of Political Economy (March-April 1969): 274—ed.]
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 The
Myth of the Scandinavian Model
"America's social model is flawed, but so is France's," the Parisian
newspaper Le Monde recently wrote. According to Le Monde Europe should
adopt the "Scandinavian model," which is said to combine the economic
efficiency of the Anglo-Saxon social model with the welfare state
benefits of the continental European ones. The praise for the Nordic model comes from
Bruegel, a new
Brussels-based think tank, "whose aim is to contribute to the quality
of economic policymaking in Europe." The think tank is a Franco-German
government initiative and is heavily funded by EU governments and
corporations. In October Bruegel published a study "Globalisation and
the Reform of European Social Models" [pdf] propagating the Nordic
model.
However, despite Bruegel, distorted
academic studies and the European
media's praise, the efficiency of the major Scandinavian economies is a
myth. The Swedish and Finnish welfare states have been going through a
long period of decline. In the early 1990s they were virtually
bankrupt. Between 1990 and 1995 unemployment increased five-fold. The
Scandinavian countries have not been able to recover.
The implosion of the welfare state.
In 1970, Sweden's level of prosperity was one quarter above Belgium's.
By 2003 Sweden had fallen to 14th place from 5th in the prosperity
index, two places behind Belgium. According to OECD figures, Denmark
was the 3rd most prosperous economy in the world in 1970, immediately
behind Switzerland and the United States. In 2003, Denmark was 7th.
Finland did badly as well. From 1989 to 2003, while Ireland rose from
21st to 4th place, Finland fell from 9th to 15th place. Together with Italy, these three
Scandinavian countries are the worst
performing economies in the entire European Union. Rather than taking
them as an example, Europe's politicians should shun the Scandinavian
recipes.
 Europe's Ailing Social Model: Facts &
Fairy-Tales.
Europe's social model is unable to tackle the modern challenges of
globalization, and has left Europe with gigantic problems: an
unsurmountable public debt and pension liabilities, a rapidly ageing
population, 19 million unemployed, and an overall youth unemployment
rate of 18%. The unemployment figures may easily be doubled to account
for hidden unemployment. The untold reality is that Europe's real
unemployment stands at the level of the 1932 Depression. The very
essence of the welfare state is at stake.
A man-made
Disaster : Europe's
social disaster is
unfolding while the rest of the world is booming at its fastest rate in
three decades. 2004 and 2005 were record years for China and India,
which have double-digit growth rates, and for the USA, which fully
enjoys the benefits of globalization. The world's economy is booming at
an average rate of over 4%, but Europe's growth has stagnated at an
inflated 1.5%. Martin De Vlieghere, Paul Vreymans
Taxation, tax reform and monetary
policy
The present Governor of the Bank of England, Mr Mervyn King, once
observed that "Central banks are often accused of being obsessed with
inflation. This is untrue. If they are obsessed with anything, it is
with fiscal policy."[1] I would not go quite as far as to call it an
obsession. But it is certainly true that central bankers in general,
and European central bankers in particular, take a close interest in
public finances. And this is hardly surprising. Perhaps it is not by
chance that having a strong public finance background -experience
either in academia or in government, or in both - is not uncommon
amongst central bankers.
I would not
elaborate
more on whether and how the professional career of central bankers
affect their interest in public finance issues. But on a more factual
note, it is key to remark that in the euro area close to 50% of GDP is
channelled through the government accounts and governments are by far
the largest issuers in securities markets. Government taxation and
expenditure have a considerable impact on the macro economy. And this
cannot be ignored when formulating monetary policy....
Speech
by José Manuel González-Páramo, Member of
the Executive Board of the ECB. Universidad Complutense Madrid, 13 May
2005.
As Britain
watches the birth of the Euro and euro-integrationists advocate Britain
joining euro-land as soon as possible it is surely time for an honest
debate to begin? Many have forgotten the personal suffering and the
huge disincentives to enterprise and investment induced by a culture of
high taxation. They need to remember fast, before advocating such a
colossal folly. Whether by accident or design, many have misled
when explaining the meaning of EMU and the emergence of a European
Single Currency. EMU does not stand for European Monetary Union, as
they have tended to suggest, but instead stands for Economic and
Monetary Union. This is a crucial error to make and neglects one of the
key effects of the introduction of EMU: the harmonisation of nations'
economic and monetary policies and ultimately of fiscal and taxation
policies. As the current president of the Bundesbank, Hans Tietmeyer,
remarked in October 1995 "it is an illusion to believe that the States
will retain their independence in fiscal policy."
From
1984 to 2002 Irish prosperity grew with over 167%. Belgian wealth with
just 42%. In Ireland industrial jobs increased with 35%, whereas
the Belgian industrial employment caved in. In half a generation
Ireland became the second most prosperous country of Europe. What
are the causes of the Irish economical and social success? The
Irish socio-economic model is distinguished from the rest of Europe by
its fair-tax model.
Economists and politicians agree that
Europe's economy has been
suffering from a serious disease. In 2000 the Lisbon Agenda identified
the symptoms of this disease – high unemployment and low economic
growth.
In
his presentation
- Petr Mach argues that the Lisbon Agenda
misunderstood the real cause
of the underperformance of European economy, and therefore prescribed
wrong treatment.
- Petr Mach shows that now
that the time for Lisbon Strategy is halfway
through, the economic situation in Europe is even worse than it was in
2000 when the agenda was set, and that this is due partly to the wrong
diagnosis of the disease.
- Petr Mach argues that
there is a direct link between the European
economic underperformance and European legislation which allows
spreading of many of those bad and rigid policies that are underlying
cause of the slow growth and high unemployment in Europe.
- Petr Mach argues
that by extending majority voting in the Council of
Ministers to other areas including labour legislation, the
Constitutional Treaty actually extends the list of rigid economic rules
that can be imposed on European nations from above. According to my
opinion, this can only hinder the dynamics and competitiveness of
European economie
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DAVID CAREY AND JOSETTE RABESONA (2002) Tax Ratios On Labour And
Capital Income And On Consumption
http://www.oecd.org/dataoecd/42/37/22027720.pdf
DAVID ALLEN, (1998) Int.Schumpeter Society The Limits of Government On
Policy Competence and Economic Growth
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DAVID SMITH (2001) Public Spending and Economic Performance
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FRIEDRICH SCHNEIDER (2002) University of Linz, The Size and Development
of the Shadow Economies in OECD Countries
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GERNOT DOPPELHOFER (2000) Determinants Of Long-Term Growth: A Bayesian
Averaging Of Classical Estimates (Bace) Approach
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GRAEME LEACH (2003 ) The negative impact of taxation on economic growth
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JAMES GWARTNEY (1998) Florida State University. The size and functions
of government and economic growth
http://www.house.gov/jec/growth/function/function.pdf
JAMES GWARTNEY (1999) Economic Freedom and The Environment for Economic
Growth
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JAMUS JEROME LIM (2003) Do democracies grow faster
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http://www.economie.uqam.ca/PDF/sarte.pdf |
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