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Although I did manage to squeeze in a few hours in the
Portuguese sun chasing a little white ball, the purpose of my just-concluded
whirlwind trip – a Sunday-to-Sunday jaunt with stay-overs in four
different countries, including two of the PIIGS, Ireland and Portugal, and
pending PIIGS member France twice – was mostly business.
As you might expect at this pivotal point in European
history, I wasted no opportunity in questioning the locals – from
widely followed economists to taxi drivers and everyone in between –
about their views on the European Union and the common currency that serves
as the glue holding it together, albeit barely.
Now, I am not going to go on at great length on the
policy experiments that have brought Europe to its knees, and certainly won't
weigh in with a tourist's opinion on how the whole mess will resolve: there
are hundreds of media darlings in the wings, clearing their pipes in the hope
of being called upon to opine this way or another on just those topics.
Rather, what I would like to do is encapsulate, in as
few words as I am capable, the essence of the problems facing Europe, and
leave it to you to draw your own conclusions. To assist in that regard, I
will use my observations on the ground in Portugal.
For those of you who are unfamiliar with the place,
physically and meteorologically, Portugal is about as good as it gets.
The weather is almost identical to Southern California,
and the country has a long coastline complete with stunning (and largely
empty) beaches. As with Southern California, the land is rich and supports
the growing of pretty much any crop.
The people are friendly and well educated, with most
speaking three or even four languages (Portuguese, English, German, Spanish
are fairly standard). The food is fantastic, especially the fresh seafood,
prepared to perfection even when just cooked over coals in a fisherman's
shack.
Supplementing the local culture is a robust expat
community: in the Algarve, where I stayed, most expats are refugees from the
rest of Europe, with what seems to be an extra measure of Brits. Crime is low
and, thanks to the crisis, there are bargains aplenty for houses and recently
constructed (but now largely empty) apartment buildings, even near the water.
The storied cities of the Old World, Paris, Dublin,
Madrid, Rome, Zurich, London are only a short hop by
plane, and thanks to the hard-charging Michael O'Leary and his cut-rate Ryan
Air, a cheap hop at that.
Which had me wondering, what's the problem? The same
thought had come to mind while wandering about the bustling streets of Dublin
a couple of days earlier.
You see, and I kid you not, every Portuguese, save one,
I spoke to during my three-day visit was profoundly pessimistic, resigned to
a new reality of the lack of tourists, empty hotels, failed real estate
developments, the crash of the construction industry and the dearth of bank
financing to fund anything. Every person I met under the age of 30 was
looking to get out of the country.
Over a lunch with friends, including a recent graduate
with a Master's in the computer sciences, I was told that even senior
government officials are urging young people to emigrate, as there is no
future in the country. Thanks to the miracle of the Internet, I did a bit of
poking around, and sure enough – I was correctly informed. This from a
February 2012 edition of USA Today…
"Recent
graduates should lead a new type of emigration, different from the 1960s,
when Europe was the destination," Minister for Parliamentary Affairs
Miguel Relvas said recently. "In the past 20 years, Portugal has
invested in a generation of people, and now we can't give them what they
need: employment."
As I will expand on momentarily, the conversation was
almost identical in Ireland as, I suspect, it would be in Greece, Spain and
across most of Europe.
So what was the number of the truck that ran over the
aspirations of an entire generation? That laid low the economies of a dozen
or more countries across the continent?
I'll give you a hint by relating that as a condition
for inclusion in the Eurozone, functionaries in the European Commission based
in Brussels required the Portuguese to retire and destroy a large percentage
of their fishing fleet. As I understand it, the commissioners felt that the
size of the Portuguese fleet coupled with the sea-faring nation's long
history in commercial fishing gave it an unfair advantage over other nations
in the Eurozone. They also helped rationalize the demand to burn the boats by
saying that the Portuguese fishermen were putting the ecosystem of the
Atlantic Ocean at risk.
The result of forcing the Portuguese to burn these
tools for capital creation is that since joining the Eurozone in 1986,
Portugal's fish harvest has effectively been cut in half. I was told that the
country is reduced to buying many of the sardines that find favor in the local
cuisine from the Spanish fleet.
The Euro-meddling doesn't stop with fish. The
Portuguese are mandated to trash a large amount of their annual orange
production lest they exceed the quotas set in Brussels. Apparently the
Spanish, ever attuned to capitalize on Portugal's mandated misfortunes, buy
the unsellable excess oranges and use them to make marmalade… which
they then sell back to the Portuguese.
Of course, actions have consequences. One of them has
been that Portugal has run a trade deficit for about twenty years now –
in other words, starting soon after joining the EU in 1986.
And even though the country (and the continent) is
tight in the grips of the most dire crisis in living
memory, the EU commissars are still at it. In fact, as I write, Portugal is
being forced by the European Commission to kill a large percentage of its
chicken population, with the slaughter to be completed over the next month.
This by virtue of the ironically named EU Welfare of Laying Hens
Directive, forbidding the continued use of conventional egg-laying
cages.
Once the chickens are destroyed, and provided the
Portuguese egg farmers can ever find the capital needed to rebuild, they will
have to build to the specifications of the EC Directive that requires that
all laying hens must be kept in "enriched cages" providing each hen
with at least 0.8 square feet of cage area, a nest-box, litter, perches and
claw-shortening devices, allowing the hens to satisfy their biological and
behavioral needs.
Now, I like chickens as much as the next guy,
especially lightly grilled with a pinch of paprika and a dash of sea salt,
and am firmly against the human tendency to mistreat animals (except when it
comes to eating them, of course), but for the EC to foist this sort of
perfect-world mandate on the Portuguese at this delicate point in time seems
sheer madness.
One Portuguese taxi driver said sourly that the
economically stifling EU policies would not stop until they finished killing
off the Portuguese people through starvation.
He could be right. If the latest iteration of the EU
Common Agricultural Policy is pushed forward, it will tie payments to
farmers to environmental targets. Those targets include requiring the farmers
to reserve at least 7 percent of their land for ecological purposes. In other
words, if the farmers don't decrease their output of food by 7%, they won't
be able to sell the food they produce on the other 93% of their land.
Given that they are already having trouble selling what
they grow, due to the quotas and the fact that the euro makes their output
uncompetitive, there is real concern about the viability of the Portuguese
farm sector. Remember, we're talking about a growing environment as temperate
and fertile as Southern California.
It was around this point in my wanderings that the
proverbial scales dropped from my eyes and I came to something of a
revelation.
Europe has been quietly taken over by communists.
And I'm not saying that for dramatic effect, but
because the facts are evident. Succinctly put, operating from headquarters in
Belgium, upwards of 30,000 bureaucratic functionaries working for the
European Commission, and sub-commissions such as the Education Commission
and the Competition Commission, are concocting an endless stream of
perfect-world regulations whose net intent is to manage the economies of all
EU members.
And, for good measure, all functions of civil society.
No matter how they spin their actions as the spawn of
lofty goals and high principles, even a cursory glance reveals that the EU is
now operating as a command economy – one where the productive capacity
of commercial enterprises, fishing and farming being just one small corner,
is being directed by central planners.
Communists.
And we think the United States has problems? Here we
have only one bloated tick draining the lifeblood from the economy –
albeit a really big bloated tick – but in Europe, they have two: the
governments of the individual nations, and on top of that, the Bolsheviks in
Brussels.
In Ireland, the situation is much the same. With prices
driven sky high by the euro, Ireland's tourist trade has been reduced to a
trickle. Just as was the case in Portugal, the Germans, who have been about
the only nation to have benefited from the Eurozone, make up a large percentage
of the reduced tourist traffic.
This meme, that the Eurozone was an inside job by the
Germans aided by the unwitting French, is growing among Europe's population
and is being discussed openly by a number of analysts. This from George
Friedman of the well-respected Stratfor.
There are two
narratives to the story. One is the German version, which has become the
common explanation. It holds that Greece wound up in a sovereign debt crisis
because of the irresponsibility of the Greek government in maintaining social
welfare programs in excess of what it could fund, and now the Greeks were
expecting others, particularly the Germans, to bail them out.
The Greek
narrative, which is less noted, was that the Germans rigged the European Union
in their favor. Germany is the world's third-largest exporter, after China
and the United States (and closing rapidly on the No. 2 spot). By forming a
free trade zone, the Germans created captive markets for their goods. During
the prosperity of the first 20 years or so, this was hidden beneath general
growth.
But once a
crisis hit, the inability of Greece to devalue its money — which, as
the euro, was controlled by the European Central Bank — and the ability
of Germany to continue exporting without any ability of Greece to control
those exports exacerbated Greece's recession, leading to a sovereign debt
crisis. Moreover, the regulations generated by Brussels so enhanced the
German position that Greece was helpless.
(Read the full article here. )
Of course, the Germans weren't the only ones that
benefited from the Eurozone. Widely followed Irish economist David McWilliams
explained over a pint in Dublin that the older folks did very well, thanks to
the giveaways spread around by the central planners in Belgium in the early
days of the EU.
As proof, he told us to look around the fairly pricey
restaurant we were eating in. Sure enough, there was no one under the age of
60 in evidence. As for the young, they missed the parade.
In the view of McWilliams, one of the consequences of
the cascading failures of the European economy will be a wave of bank runs on
the continent, beginning in the not-too-distant future.
"Are you worried about a bank run?" I asked
the young taxi driver on the way back to the hotel following dinner.
"Oy, that's a good one, that is," he answered
with a laugh. "I guess you'd have to have some money in the bank to
worry about that, now wouldn't you?"
He went on to explain that he and all of his mates were
clinging on to their existence by their fingernails... that is, those mates
of his who hadn't already pulled up stakes and headed for distant shores.
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Yellow Card!
Over the course of the aforementioned lunch, a
Portuguese friend, brimming with the optimism of a self-made man (encouraged
by a glass or two of an excellent rosé) enthusiastically exclaimed
that the solution to his country's seemingly insurmountable problems could be
achieved by improving the local education system.
To which I responded, "You may be correct, but
that takes a generation, and at this point you only have months." He
conceded the point.
Nowhere are the shortcomings of the educational system,
worldwide, more apparent than in the matter of economics.
"The foreign investors are ruining our countries
by forcing interest rates higher," said a Portuguese car service driver
with remarkable fervor considering his words were spoken at 3:30 am –
the ungodly hour I had to head to the airport in order to catch my flight
from Faro to Lisbon. "The government should limit how much interest rate
the investors can get!"
Having to choose between trying to nap on the one-hour
ride, looking out the window at the street lamps whisking by at breakneck
speed, or engaging in a conversation with the rather passionate driver
(evidenced by a waving about of his right hand, and sometimes his left as
well), I chose the latter.
"Well, actually, that is largely out of the
control of the government. Of course, they could try to limit the interest
rate to whatever they want, but if investors don't feel the yield is worth
the risk – and these days, there's a lot of risk, they'll just sit on
their wallets," I said, hoping against hope his hands would stay on the
wheel around the fast-approaching bend.
"And, besides, haven't you had enough of the
government meddling in your life? Shouldn't a market for, say, oranges be
only between the buyer and the seller? Shouldn't a fisherman be free to fish
and a farmer free to sell their produce for the best price they can
get?"
Rising one hand in preparation to respond, he let it
drift back to the steering wheel and shook his head. "Yes, that's the
way it should be."
Which made me wonder, maybe the entire educational
system doesn't have to be retooled, just the module about how economies work
best.
After all, if the populations of all these many countries
were as well versed on the immutable laws of economics as they are on the
rules of soccer, then when a Hollande or Duarte or Obama took to the podium
to propose the latest harebrained scheme to meddle in the free functioning of
markets, they would be chased off the stage by the incredulous and rightfully
indignant listeners.
Alfredo, did
you hear what that fool said?
That the
government should create currency units out of thin air and pretend it's good money? Where is that referee! Yellow card! Yellow
card!"
Unfortunately, through intellectual sloth and
government design, not one in a hundred people these days – no matter
what geography confines their backsides – has the slightest idea of
what makes an economy function properly. And so they are no better able to
understand the nature of their current situation or the actual solutions than
was a cave man witnessing his first volcano and turning to the sun for an
answer.
It is thus that, as was the case with the primitive and
their shamans, people look to their governments to shake the bones in the
correct manner to solve what ails, versus take the only action that will be
effective: let the markets alone do what they do best – punish the
misallocation of capital so that new capital can flow in.
Unfortunately, the historical moment you and I share
will be greatly impacted by the time lost in the futile petitioning of
imaginary gods, the people prostrating themselves at the feet of Brussels and
Washington or the other centers of political power in the vain hope the
bureaucrats will wave their magical policy wand and make all that ails well
again.
With each passing day, and each new order issuing forth
from the central planners, the situation only grows worse. And while I would
like to believe that the public at large will come to recognize that it is
the central planners that are the problem, not the solution, the hard reality
is that people have been so brainwashed at this point that they are going to
demand far more government meddling, not less, in the months and years just
ahead.
So, here's the thing – at least as I see it. And
that thing is that the situation is actually hopeless, but in that
hopelessness is where hope can be found.
You see, because everything is broken beyond repair,
everything must change. And so it will.
Everything
Changes
Possibly the most interesting thing about major periods
of transition such as we will live through is that no one can predict what's
coming next. Of course, there will be a handful of people who correctly
anticipate the big shifts, simply due to basic odds – but for a number
of obvious reasons, there can be no methodical process by which the future
can be accurately divined.
Instead, the forecaster must work with written
histories, personal experience – including exposure to the thoughts of
others they respect – and the intuition that mixes all the inputs
together and delivers a vision of the future that makes more sense to us than
any of the alternatives.
Again, not science, so invariably it boils down to what
will hopefully be informed opinion.
So how, in my opinion, do we transition from this point
in history to whatever comes next? Will society act like Europe in 1914 and
break free of the bonds of peaceful coexistence in order to tear at each
other's throats in actual war, versus the proxy of war found in every
European soccer match?
Or will the transition happen through localized
explosions of discontent?
"We will have a civil war," said my
Portuguese driver when I asked him why the populace wasn't more energetic in
its protestations about the EU's ruining of their economy. "Or maybe
it's another dictator, or a civil war and then a dictator."
Driving across the landscape of Portugal, which like
pretty much everywhere else in the world is dominated by wide open spaces and
sparse populations gathered together in villages, towns and cities that
barely make a dent on the environment we are all urged by the central
planners to worry about, the thought struck me how difficult it is to conquer
a country. Specifically, to cross every hedgerow with sufficient firepower to
vanquish the bold on the other side, then bully the timid into remaining that
way.
Yet, we humans have shown a remarkable ability to
achieve what tasks we set our minds to, and so Europe in particular has been
swept from one end to the other by invading armies over the centuries.
That said, in the current chapter, I don't anticipate
an actual shooting war between nations (but the thought nags that maybe no
generation ever does). Even so, other than a few outposts of despotism, based
on my observations people show little passion for what might be termed the
military life.
While the US stands almost alone in its aggressive
foreign policy, I don't think the average Joe or Jill views the military in
the same positive light as previously. That is a fairly new phenomenon: Even
as recently as the Vietnam War, there was still a societal memory of WWII and
WWI before it. We still named our parks after generals, and as children we
remembered the Alamo.
Today, those memories are ancient history and people
are otherwise intellectually engaged, primarily awaiting news of the next
iPad application to entertain and inform them.
Sure, the Greeks and Portuguese may be upset at the
Germans (and most are), because they think the
Germans pulled a fast one with the Eurozone, but marshaling an army to show
the Bosch bastards a thing or two? Hardly.
Internal dissent? Absolutely.
I think as with the Arab Spring, we are highly likely
to see riots and popular uprisings increase in both frequency and intensity.
Even so, because of the economic ignorance of the populace and the scale of
the problems, even if the old guard are replaced,
the new guard will likely be even more ill-informed and more socialist than
they are now.
Alas, when it comes to economics, there really aren't
any fresh ideas. Sorry, but no new and more effective way of central planning
remains to be discovered. Yet the population will again demand that the
experiment in redistribution is conducted again and again, even though the
result is inevitably the same – the result that Europe and most of the
modern world are now suffering from.
At its heart, this unbreakable love of the idea of
socialism revolves around the entirely human fiction that the government can
take from those who have and give to those who don't, thereby leveling the
playing field and allowing those who are so inclined to earn more while doing
less.
Of course, when pressed on how this bit of legerdemain
can be accomplished, the only honest answer is, if
the government allows some of the population to directly benefit from the
labor of others.
To see where this sort of thing can lead when taken to
the extreme, look no further than Cambodia circa 1970, a country that went
all in for communism as the path to a perfect world. Unfortunately, in no
time at all anyone considered "rich" and not fleet-footed enough to
get across the political border was either financially ruined or killed...
actually, most were financially ruined and then killed.
Margaret Thatcher put it succinctly, "The problem
with socialism is that sooner or later you run out of other's people
money."
As I drift – oh how I drift – I will put an
oar into the current to try and steer back into the main stream of today's
missive by quickly recapping to this point before throwing out my top
"never-saw-it-coming" idea for how the transition to what's next
will come about.
Summing up, the educational system, media and politicians
have conspired to instill in the public mind an intransigent set of
unworkable ideas about how economies work (e.g., that government meddling
alone can foster economic growth).
These ideas are so deeply rooted at this point that the
path forward is going to keep worsening until the world goes through a
profoundly cathartic transition… as profound and cathartic as the
atomic bombs going off in Japan at the end of World War II. While devastating
in every sense of the word, if there was a positive, it would be that the
explosion burned away Japan's militaristic death-cult government down to the
last root, leaving the gentler and more entrepreneurial aspects of the
Japanese culture to blossom. (Of course, there is a lot more to the post-war
experience in Japan, but time dictates brevity.)
So, what agent or cluster of agents
carry such world-changing potential?
In my view, technology.
The New War
While technology will continue to provide serious
improvements in the quality of human life, a topic I have touched on in
previous editions, in my view the odds are growing that the seminal event
that brings a close to the era of dominating sovereigns will be brought about
by a war that does not involve troop carriers rumbling across the countryside
but rather the deliberate or even accidental unleashing of a powerful
computer virus in the virtual world.
Unfortunately, the creation of a virus that targets
critical computer infrastructure is well within the range of current
capabilities. And while the Internet is remarkably resilient, what humans
truly set their minds to is almost always achieved.
The French manning the Maginot line and the heads of Iran's nuclear program
both thought their defenses were impenetrable, before they found out they
were not.
In the case of the Iranians, despite having sealed off
all the computers in their primary nuclear-development lab from the outside
world – no cables or wireless connections extended outside of the inner
sanctum – with careful planning, killer programming and a little
patience, the US and Israel were still able to inject the Stuxnet virus that
destroyed them.
Today, unfortunately, a derivation of the Stuxnet virus
– the Flame – is beginning to show up in the world wide web.
While there has been some news and a bit of Twitter traffic about it, so far
the reaction among the masses has been tepid at best. Yet, according to
computer security experts Symantec, the virus is built to allow the operators
to wipe out computers.
Symantec
researcher Vikram Thakur said on Thursday that the company has now identified
a component of Flame that allows operators to delete files from computers.
"These
guys have the capability to delete everything on the computer," Thakur
said. "This is not something that is theoretical. It is absolutely
there."
To be clear, I am not saying the Flame will herald in
what's coming next. What I am saying is that it, or whatever soon follows,
certainly could.
In fact, I am completely sure that something even more
powerful, even more insidious will follow, because the people who live in the
dark world of cyberwar will now view the success of Stuxnet in Iran in much
the same light that Oppenheimer et al. viewed the explosion of the first
atomic bomb in 1945, setting the stage for a redoubling of efforts that brought
us nuclear bombs strapped to intercontinental ballistic missiles.
Unlike nuclear bombs, in the case of a computer virus,
the world's richest nations are not the only ones that can play. In fact, I
would bet everything I have that there are a thousand highly intelligent but
morally ambivalent hackers sitting at their desks at this very moment trying
to come up with their own, but better, version of Stuxnet.
So, how's this for a transformative event.
You get up one cold winter morning and there's no electricity.
If you could log on to the Internet, watch television or listen to the radio,
which you can't – you'd learn that the primary operating systems of a
major power transition hub have been infiltrated and destroyed, along with
the back-up systems.
As the grid begins to overload, a second hub goes down,
then another.
Note that I am not talking about "the
Internet" here – but a proprietary system that connects to the
Internet in too many ways to count. And, as the Stuxnet attack proved, even
if the system is an entirely closed loop, it can still be attacked.
While your first thoughts on discovering you had no
electricity and that nothing requiring electricity worked would likely be
frustration at not being able to instantly access the information as to why
the electricity was off… within a pretty short period of time, your
thoughts would turn to other matters. Such as heat, or being able to get
access to fuel for your car, or the lack of food or water.
If I remember correctly, the modern
"just-in-time" delivery model means that New York City has only
about enough food on the shelves to last the population a day… and once
people realized what was going on, it wouldn't even last that long. Even
worse, a human being can't go for much more than three days without water
– versus several weeks without food – and without power, there's
no readily available water supply.
Now, I don't want to get all dystopian on you, and I
have gone on far too long anyway, so I will head toward a conclusion.
The scenario just above seems extreme, and may be. But
the entire point of this exercise is to urge you to give at least a little
thought to what might lead to the sort of societal transformation I believe
we'll have to go through in order to expunge the crippling dependence of people
on governments that has arisen over the last 100 years. Only when people once
again learn in no uncertain terms that ultimately they have to rely on
themselves to better their life – working with their neighbors and
others they want to associate with freely – can the world transcend the
current morass.
Give a little thought to your Plan B.
For those of you who live in Europe, may I suggest you
start calling the EU and the EC by the correct term, Commissars.
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