In a recent article on the never-ending Greek Kabuki theater, we have come across parts of an interview EU budget commissioner Kristalina Georgieva has given to AFP, in which she explains J.C. Juncker’s cunning plans to “kick-start” the European economy by pumping €300 billion he doesn’t have into infrastructure projects and other assorted white elephants (we have previously discussed this Stalinesque plan, as well as what usually happens when even some of the “best stewards of EU funding” are “investing in in infrastructure” – see The EU’s Ghost Airports for the ghastly details). The interview contained the following gem:
“The Juncker plan is to wake up the liquidity sleeping in our financial system, to give courage to our money, to pump investment into the real economy,” Georgieva said.
The always open spigot, spitting out what is apparently valiumed money.
So the idea is that the enormous mountain of money created by the ECB and depicted below is somehow “just sleeping” and if only someone – ideally JC Juncker – manages to wake it up and give it the necessary courage to get wasted on projects no-one needs or wants, the economy will magically improve. Prosperity is practically around the corner! Riiiiight.
Europe’s huge pile of ECB confetti – just sleeping! The total is the red line, the annualized rate of change the blue line. Yes, that red line is going parabolic, via ECB, click to enlarge.
Apart from the problems with this plan we have already discussed, which consist mainly of the fact that governments cannot sensibly invest, because rational economic calculation is situated somewhere between totally alien and utterly impossible for them, there is another problem with this idea Juncker (and many others) apparently don’t understand.
Juncker in wining and dining mode – at least in these moments, he can do little or no harm. The only time when he may actually even cost less, is when he sleeps.
Photo credit: Reuters
It doesn’t matter how much “money” (we use the term loosely…) the ECB prints, the amount of free capital in the economy cannot be altered by this. While the money can be used to buy existing things and drive up their prices – as recently demonstrated in stock and bond markets – entrepreneurs borrowing money are actually not looking for money. They are looking for capital.
Newly created money can redistribute wealth, as it benefits early receivers to the detriment of later receivers. However, “money” is not what is ultimately used for investment. In order to invest, someone must have saved, and while these savings are “stored” in the form of money, production is in fact funded by the goods that were/are produced but not consumed.
If these goods don’t exist because no-one has saved or is saving from his share of ongoing production in the here and now, the central bank can print money until it is blue in the face, and there still won’t be a recovery. The best it can hope for is that an illusory recovery will take hold, that phantom prosperity is created that makes it appear for a while as though wealth creation were going on, even though scarce capital is actually consumed.
The road to prosperity proves difficult to find …
What Juncker is proposing would actually exacerbate the waste and losses that are already in train due to the ECB’s unconscionable printathon. Given that the private sector would never invest even one dime in his projects without getting government guarantees for at least its capital and often also a certain amount of steadily accruing minimum returns (as has apparently happened in the case of the above mentioned ghost airports), real wealth is almost guaranteed to be lost. It is a pompous way of retrogressing economically while feeding various fat cat cronies.
Since these capital and return guarantees must in turn be funded with the taxes paid by those who are actually still creating real wealth, it is a kind of double or even triple whammy of Keynesian waste. Only Japan may arguably even be better at stuff like this.
Don’t be taken in by this economic legerdemain. There is no “sleeping liquidity in need of being woken up”, least of all for the purpose of being misdirected by government bureaucrats. There is an extremely misguided view in Europe, which is a heritage of proto-Marxist socialist Utopianism, that economic growth is something the State somehow produces and bestows – even if occasional lip service is given to the need to “help the private sector”. The best way to help the economy is by making it free, not by subsidizing cronies and funding projects no-one would invest in voluntarily.
At least Juncker seems to have realized that he and his colleagues are by now viewed with growing skepticism by a largely helpless, but increasingly vexed electorate. In a recent interview with Der Spiegel, he made the following remark:
“The people of Europe are also becoming more skeptical and the gap between them and the European elite is widening. You would have to be blind not to see that. That is why Brussels cannot continue to focus on trivialities and burden people with regulations that can often be better handled on a local level. Europe has to show that it is able to take action on the larger, urgent problems: in foreign policy, with the immigration problems, with the economic challenges of the digital era. The European debate can no longer be limited to shower heads and olive-oil jugs.”
Unfortunately we’re not quite sure if this was meant to be just another empty promise or a very real threat.
Juncker in his Brussels office, looking extremely busy. Beware of busy bureaucrats, they can be very costly.
Photo credit: Wiktor Dabkowski