Jeffrey Sachs is senior economist at the UN and author of the bestseller "Common Wealth" and the controversial Time essay "The Case for Bigger Government". In a recent interview in the Brussels newspaper De Tijd Jeffrey Sachs blames “unbridled American market capitalism” for the financial crisis and pleads in favor of the Swedish social model as an alternative. His ideological argument is revealing for the dominant utopian-socialist mind at the top of the UN.
The Swedish social model, which Sachs would like to introduce, has not the only the largest Size of Government of Western World, but also the weakest economic performance of the OECD. In 1970, Sweden still was the fourth wealthiest nation in the world. Thirty years later, Sweden had fallen to rank 17 with catastrophic social consequences. In the meantime the U.S. consistently managed to remain the second or third for more than half a century. So there is not much socio-economic wisdom to be learned from the Swedish Social Model.
Sachs also argues that "unbridled capitalism" is the cause of the current crisis. The reality is that during the last twenty years central planning progressively intruded Western economies who now bear the burden of governments spending 40% to 55% of GDP. Entrepreneurs face ever more crippling restrictions, licensing schemes, quotas and price and quality controls. Businessmen endure tens of thousands of pages of new rules and regulations each year, all written in a lawyers slangy that totally undermines the legal certainty of the free market and which transformed business into a gamble on the next political caprice and on judicial interpretations of the legal jargon. Size of government, computerized control and dirigisme has now reached a level plan economists of the Soviet Union could only dream of. Not the capitalistic system failed, but excessive dirigisme is to blame for the crisis.
Sachs also fails to mention the role of monetary policy in the financial crisis. Still it was money printing that undermined our purchasing power, and heavily forged our means of exchange and saving, with massive distortions as a result. The reason why interest rate manipulation causes so much distortion is that the interest rates are the key factor in all spending and investment decisions. Not only in the choice between saving and consumption, but also in the investment calculus between capital intensive and labor-intensive production processes. Years of low interest rates lead to overinvestment in futuristic automation and nonsensical expulsion of low-skilled labor from production processes. The colossal waste of low skilled labor tumbles overall productivity resulting in lasting stagflation and heavily suboptimal living standards.
Way too easy access to cheap credit also lead to the banks’ under-capitalization and extreme leverage ratios, and to a massive competitive disadvantage of labor-intensive SMEs in favor of big business. System Threatening concentration and monopolies are the result. Industrial overproduction and huge inefficiencies due to shortages of service providers are just a couple of the actual symptoms.
New Monetary system
Technological and commercial progress result in yearly productivity gains of 2 to 3%. Prices should therefore fall by 2 to 3% and not rise as we now witness for as long as one remembers. The positive inflation targets adopted by Central Banks worldwide seize all the benefits of progress in favor of the bankers, and systematically confiscate 4 to 6% of Joe Sixpack’s and Sally Housewife’s added value. Such inflation leads to severe distortions and is fundamentally unjust. The collective achievement of progress belongs to the whole of society, and in the first place to those who most contribute to it. Worse still is the fact that inflation devalues worker’s savings so much that the real purchasing power is often only one third when they reach retirement.
We do not need a Swedish social model as Sachs argues, but an just monetary system. Such system can only be equitable and achieve efficient allocation of resources when monetary growth is zero or at the most limited to the growth of the real economy. A return to the gold standard may be the best guarantee thereto.
Kyoto and Emission rights
Sachs also belongs to the side of the climate fixers who take the controversy over the global warming trend for a "global consensus" and continue to believe that human action caused the trend and may even reverse it. According to Sachs Southern Europe will soon dry out and cause a massive flow of refugees to the north. The bombastic climate alarmism in the run up to the Copenhagen Climate Conference next month must be understood as an ultimate attempt to convince conference goers to step into the global emissions bureaucracy.
CO2 Emission rights are a totally fictitious but legally indispensable commodity for most production processes. Politics will determine its degree of scarcity and the regional allocation, thereby disconnecting production costs from market reality and cause massive distortions. The global ETS scheme is not only fraud sensitive. Scarcity and allocation being the result of political decisions, inside knowledge are likely turn the ETS scheme into one big swindle with grave counter-productive effects. The Soviet debacle learned to what systemic waste the falsification of competition and the elimination of market forces can lead. High subsidies for extremely low productive windmills and solar panels in the Western World for example are causing awfully suboptimal use of scarce resources worldwide. Under free market conditions much more productive use would be found in developing countries.
Market oriented Alternative
Before attacking hypothetical problems, let us first solve the real problems that threaten humanity. One single water pump at an equivalent cost of a couple of solar panels can indeed spare hundreds of Sahel women the daily journey to the spring and spare many infections and lives.
Fundamentally, Kyoto emission rights are nothing less than a World Tax on existential human needs and are therefore incompatible with the human right to development. The scheme will cost the Belgian taxpayers 3 to 5 billion Euro annually in the first phase, or the equivalent waste of a "Long Wapper" each year. And such type of taxes tend to increase over time.
If indeed CO2 reductions ever proved to be effective in the “climate management”, national governments can just as well raise existing taxes on fossil fuels without the extravagance of the global emissions bureaucracy. As consumers will only substantially save energy when energy becomes expensive, it is the only effective and market-oriented way to reduce emissions without the distorting political interference. The administrative cost of such an increase is zero whereas a shift of the tax burden from income to consumption can only boost the economy rather than destroying it as would be the case with emission rights.
The emission rights scheme and the World Climate Organization which Sachs calls for are dangerous steps towards a "New World Order" that bring closer the specter of a World Government under UN tyranny.
Sachs calls it frightening that the fate of the world depends on what (democratically elected national) senators think about global warming. Even more frightening is to entrust our way of life and our living standard to the utopian socialist ideals of a few UN despots who escape democratic control. Even Marx saw in the Bourgeois idealism of utopian socialists the biggest threat of all to mankind.
This article was written by philosopher Martin De Vlieghere and businessman Paul Vreymans