On the winds

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What the USA is willfully racing towards, Europe is madly backpedaling away from. From Chriss W. Street writing at Breitbart's Big Government:
Portuguese Bail-out is the Beginning of the End of Big Government
Can you hear that great sucking sound? It�s the sound of government shrinking around the world, as Portugal just joined Greece, Ireland and soon many others in acknowledging they are bankrupt and asking their European brethren for a bail-out. What is frightening to the big government advocates is this collapse was caused by a doubling of Portugal�s borrowing costs in just three weeks. The klaxon horns are going off in Europe and America; cut deficit spending or be destroyed by rising interest rates.

Over the last two decades, governments in Europe and the United States have been massively using taxpayer subsidies to sponsor favoured industries, under the smoke screen of National Industrial Policy. The theory, developed by Harvard economist and former Secretary of Labor in the Clinton Administration, Robert Reich, stated that governments must �deliberately and strategically� speed the movement of capital and labor into �higher-valued production� or suffer social decline; with infant mortality rates rising and employment and life expectancy falling. Reich championed National Industrial Policy planners would more efficiently allocate capital and labor resources to satisfy consumer demand than large corporations who inefficiently use marketing to bend customer demand to their needs. He claimed it was the duty of government to induce through direct subsidies and worker retraining grants uncompetitive companies to scrap production and steer investment in industries of the future.

Europe adopted National Industrial Policy through the introduction of the Euro currency and banking deregulation. Southern European countries like Portugal, Italy, Greece and Spain got low-interest German and French bank loans to scrap supposedly uncompetitive local manufacturing and �cushion� the transition of workers into leisure services and retirement housing development. Germany and France got elimination of competition and export growth to Southern Europe. Europeans were ecstatic for 15 years; the South had a real estate and banking boom, the North had a manufacturing and banking boom.

The U.S. adopted a National Industrial Policy during the Clinton Administration in 1999 by tying bank deregulation to a colossal expansion of the Community Reinvestment Act. The big banks got unlimited ability for multi-state banking and abolition of the 1933 Glass�Steagall Act prohibitions against banks engaging in high risk securities and derivative trading for their own accounts. Planners got huge quota requirements for loans to inter-city and rural communities. President Clinton hailed that the signing of the Gramm-Leach-Bliley Act �establishes the principles that, as we expand the powers of banks, we will expand the reach of the [Community Reinvestment] Act�.

Fed Chairman Ben Bernanke would later blame this legislation for a surge in bank mergers and an explosion of sub-prime lending. Now that real estate has crashed, Europe and America are suffering the dark side of National Industrial Policy.
How long will it take for these idiots to realize that these theories simply do not work. People need to go back to the Austrian model and dump the Keynesian model as the junk that it is.

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This page contains a single entry by DaveH published on April 9, 2011 12:24 PM.

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