At the Mont Pelerin Society meeting that I am attending this week in Prague, the main topic is the future of the euro. Most experts here think the euro is doomed to disappear due to renegade member nations such as Greece that are refusing to adopt fiscally responsible policies. I asked whether any country has ever canceled its adoption of a major currency, such as the dollar or the euro. Greece, Italy, and Spain may go back to their own currencies, but it would be unprecedented. I’m optimistic that the euro will survive this crisis.
The society’s meeting always is a great way to learn the views of other key economists and policymakers around the world about pressing issues. The society was organized by Friedrich Hayek, Ludwig von Mises and Milton Friedman, among others, in 1947. The organization is composed of a group of influential economists and political thinkers who meet every year in a different city somewhere in the world. I’ve been going to the society’s meeting annually since 1988, when I was invited by Milton Friedman. It’s a private organization where attendees must be invited to participate. I was made a member in 2002 (recommended by Milton Friedman). I’ve spoken several times and I find the annual meeting most enlightening.
As my previous readers may know, I travel the world to gather information, meet key people, and see for myself how economies and countries are doing. This latest trip has been useful, too. As a staunch advocate of free-market Austrian economics, I favor policies that allow the private sector to conduct its business with a minimum of government interference.
Naturally, many other people, particularly Europeans who are accustomed to the social democracies that exist in many of the countries in that region, are comfortable with governments taking an expanded role. But the massive deficits in Greece, Spain and Italy, as well as the corresponding need for bailouts, show the risk of letting politically motivated policymakers determine how to allocate resources. Tax dollars can be wasted easily. Pork barrel projects, such as the infamous bridge to nowhere backed by the late Sen. Ted Stevens, (R-Alaska), and criticized by budget-conscious Sen. Tom Coburn, (R-Ok.), can originate with any political party just about anywhere. Politicians like to do things that they expect will help them get re-elected.
My visit to Prague also is a reminder that countries previously under the yoke of communism seem to value independence more than others and take the opportunities that free markets offer to heart. The formation of the Czech Republic did not come about without pain and decades of struggle. On January 1, 1993, the country emerged from a so-called “velvet divorce” with Slovakia. The divorce stemmed from the separation of two countries that had become one nation at the close of World War I when they combined to form Czechoslovakia.
The Czech Republic joined NATO in 1999, before gaining membership in the European Union in 2004. Now, the Czech Republic is one of the nations that uses the euro and it has been asked to participate in the bailout of Greece and spendthrift countries elsewhere in Western Europe.
The Czechs know the peril of central planning for an economy and the ill-conceived plans of power-hungry politicians. An invasion in Czechoslovakia in 1968 by Warsaw Pact troops ended attempts by the nation’s leaders to move away from the dictates of the Communist Party. Anti-Soviet protests the following year led to a period of harsh repression.
The sufferings of the countries and people under communist rule, as well as the human rights abuses, should not be forgotten as proof that absolute power corrupts absolutely. It was wrong for the Czechs to pay the price of Soviet domination and it also is ill-conceived for them to need to help bail out countries in the euro zone that fail to exercise fiscal responsibility. Unlike the free-spending leaders in Southern European countries, Vaclav Klaus, the current president of the Czech Republic, is a leader who has steadfastly supported market reforms. He is a good friend and has been our host at the Mont Pelerin Society meeting this week.
Let’s hope the euro is saved with responsible behavior and prudent austerity measures that do not lead to additional suffering by the Czechs and other freedom-loving people in Central Europe.
You Blew It! Nobel Prize Economists Ask for Federal Subsidies
I was pretty shocked by the news that Nobel Prize economist Gary Becker (generally known for his free-market views) is now advocating government assistance for economists. Becker did so in an opinion article, “Why the Dismal Science Deserves Federal Funding,” co-authored by James Heckman, another Nobel laureate. The Aug. 10 opinion published in The Wall Street Journal claims that basic economic research can pay off for the public, much the way that government-funded medical and chemistry research helps society.
I read their opinion carefully and I still don’t think they have made a very good case for market failure in research and development, especially in economics. Government should only get involved in clear cases where private enterprise has failed. Yet private companies, higher institutions, and non-profits are providing a huge amount of support for research and papers on a wide variety of economic subjects.
The National Bureau of Economic Research (NBER), a private, nonprofit, nonpartisan research organization that seeks to promote a greater understanding of how the economy works, has $120 million in endowment money. Look at the massive endowments of universities such as Harvard, Princeton and Yale that could be used for research and grants. Another potential source of funding could be private non-profits, such as the Gates Foundation, Rockefeller or Brookings. A possible new source is Singularity University out in Silicon Valley.
It seems to me these two Nobel economists haven’t taken into account the problem of misuse of government money for research and development. How can you be sure that billions of dollars will be spent “effectively” and not wasted?
On the 100th anniversary of Milton Friedman’s birth, many people are asking “What would Milton say?” Regarding the op-ed, I suspect he might quote himself, “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.”
While I am in Prague at the Mont Pelerin Society meetings, where top free-market economists and political thinkers gather, I recall one such meeting years ago when Ludwig von Mises created quite a controversy by standing up and telling Chicago economists, “You’re all a bunch of socialists.” That critique just might apply this time around.
Yours for peace, prosperity, and liberty, AEIOU,
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