As illustrated by this chart, economists are lousy forecasters.
To be more specific, economists are no better than fortune tellers when trying to make short-run macroeconomic forecasts. Heck, if we actually knew what was going to happen over the next 12 months, we’d all be billionaires.
But we can (on occasion) make sensible predictions about the long-run impact of various government policies. All other things being equal, for instance, it’s safe to say that countries with bigger governments will grow slower than nations that don’t divert as many resources from the private sector. Even the World Bank and European Central Bank agree with that common-sense proposition.
Another can’t-fail prediction is that bailouts will reward bad behavior and lead to dependency. That’s why I’m not at all surprised by the news that Greece will get another bailout. Indeed, if there was a least-surprising-headline contest, it would go to the EU Observer for this headline.
A third bailout? You mean the first two didn’t work? I’m shocked! Which is why we need to change to a least-surprising-headlines contest, because we also have this headline from City AM.
And this one from the UK-based Times. Which they may want to save for when it’s time for the fourth bailout. And the fifth bailout. And…well, you get the idea.
Makes you wonder why the Germans (and the Dutch, Finns, Swedes, etc) keep subsidizing bad behavior elsewhere. Yet these people apparently don’t care about moral hazard, so we see this headline from the Telegraph.
Last but not least, here’s what the BBC wrote.
Given all these headlines from today, you can see why I felt safe in predicting a couple of days ago for Canadian TV that Europe was still in bad shape. Simply stated, government is far too big and costs far too much.
Yes, there are a few bright spots, such as Switzerland and the Baltic nations, but the fiscal debate in Europe is mostly between those who want higher taxes and those who want higher spending.
With that kind of contest, there are no winners other than politicians.
P.S. The ostensible purpose of the interview was to discuss Europe’s supposed recovery. I explained a few days ago why nobody should be impressed by the anemic growth on the other side of the Atlantic. But I think any changes in short-run economic performance – for better or worse – are far less important than the long-run projections of expanding government and growing dependency in Europe.
P.P.S. Americans shouldn’t feel cocky or superior. Long-run projections from the BIS, OECD, and IMF all show that the United States will be in deep trouble if we don’t engage in genuine entitlement reform.
P.P.P.S. Since I was talking to a Canadian audience, I mentioned that Europe should copy the spending restraint Canada enjoyed in the 1990s. You can click here to learn more about happened north of the border (and why the United States also should copy the same policy).
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the French are talking about abolishing homework for school children in the name of social equality… and cutting the work week from 35hrs to 32hrs in order to create jobs… in France… the future’s so bright… you gotta wear shades… I would expect that the German people are getting pretty fed up with picking up the tab for the rest of Europe… we will find out next month… perhaps change is in the wind…
With a 0.3% growth in the last quarter, the temperature is not rising fast enough, and the European Frog is unlikely to jump out of the pot (though I prefer the analogy of the temperature dropping and the frog freezing – its is thermodynamically more compatible with a state where energy and vitality are lost).
At 0.3% growth, i.e. 1.2% annualized, European relative prosperity compared to a world that is growing at 4-5% is now “only” (-3%) to (-4%). With such good fortunes, why not send some more money to Greece?
Not helping Greece, runs against widely supported European socialist values where the competent must be forced to support the mediocre. Just like the energy of competent citizens must be harvested to support mediocre citizens, so must the stronger countries (yes those on a 1-2% growth trendline, for heave’s sake, those are considered “tiger economies” in Europe) support the mediocre (yes, those on a negative growth trendline). The continent is sinking. Slowly seem like, on a year to year basis, precipitously in a historical timeframe.
As the European union centralizes and unifies politically, the more indolent European residents are de-facto gaining more and more electoral control over the wallets of the productive. The combined populations of France + Italy + Spain + Greece + Portugal are large enough to form a majority at the European level — even without the help of the (presumed) minority of useful idiots in the remaining more productive countries (Germany + Netherlands + Scandinavia — again “productive” by European metrics of course, where expectations are so low that a 1-2% annual growth trendline earns you the badge of “Euro-Tiger” economy!).
The already declining German wallets will be voted away at the unified European level. By the time Germans realize that, the European indolent majority will have gained a firm majoritarian grip over whatever remaining German economic dynamism. The only way for Germans to avoid that is for a majority of them to abandon grand visions of a unified Europe. But collectivism has too strong of a foothold in Germany for that to happen.
Something to look forward for the rest of you, still lucky Americans.
Also clarify what is being bailed out is not actual Greeks, but their bond holders. The ptb are shifting money from one pocket to another.
That was excellent. The problem is that math is coming soon to a country near you. That which can not be sustained will not be.