Europe Tried It’s Own “Green New Deal” — It Was a Disaster

Tuesday, February 12, 2019
By Paul Martin

Daniel Lacalle
Mises.org
2/12/2019

What happens when politicians see that their monster stimuli have not delivered? They bring the next rabbit out of a hat. They need a new name and a new magic solution to make citizens believe in the magic of demand-side policies despite the constant failure of those same plans.

The Eurozone Example
A huge stimulus in 2008 in a “growth and employment plan”. A stimulus of 1.5% of GDP to create “millions of jobs in infrastructure, civil works, interconnections, and strategic sectors”. 4.5 million jobs were destroyed and the deficit nearly doubled. That was after the crisis because between 2001 and 2008, money supply in the Eurozone doubled. The Eurozone has been a chain of stimuli since day one.

The so-called “Juncker Plan” or “Investment Plan for Europe” hailed as the “solution” to the European Union lack of growth was the same. It raised 360 billion euros, many for white elephants. Eurozone growth estimates were slashed, productivity growth stalled and industrial production fell in December 2018 to three-year low levels.

The Eurozone’s massive “green” policy plan has made the European Union countries suffer electricity and natural gas bills for households that are more than double those of the US, and unemployment is still twice that of the United States, while growth stagnates. In 2016 household electricity prices averaged 26.6 c/kWh in the Euro area and 12.7 c/kWh in the US.

Let us start debunking some myths about this last rabbit out of the interventionists’ hat.

No, It Is Not a New Deal, and It Should Not Be​
When FDR launched the New Deal the size of government, public spending and debt were nowhere close to today’s elevated levels.

At the height of the New Deal, federal spending never went above the 1934 level of 10.7%. Even considering the extraordinary cost of the Second World War period, public sending went from a maximum of 43.6% down to 11.6% by 1948.

Not just that. The public sector had very little debt, a maximum of 45% of GDP. Compare that with an already unsustainable annual deficit that does not fall below half a trillion dollars, and debt to GDP of close to 100%.

In an insightful study titled “New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis”, two economics professors from UCLA, Harold L Cole and vice chair of the Economics Department Lee Ohanian determined that the anti-competition and supposedly pro-employment policies of the New Deal destroyed the possibilities for economic recovery. The two economists concluded that if these policies had not been enacted the depression would have ended in 1936 instead of 1943.
In the 1930s, the unemployment rate never fell below 15%. Five years after starting his “New Deal”, Roosevelt’s economic policies had caused one in five active Americans to be without a job. In 1937 there were 6 million unemployed and by 1938 that figure was 10 million people. In the end, it was the Second World War that “ended “unemployment. How? By forcibly recruiting 20% of the active population to work in the war industry, and by spending the equivalent of 42% of GDP on the entire effort. One significant problem was that during those years inflation which rose to almost 20% and even with 1% unemployment there was rationing of basic consumer goods. The US truly emerged from the depression when, at the end of the war, it abruptly cut taxes by one-third and began paying off the debt.

The Rest…HERE

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