Tuesday, May 27, 2014

Paul Krugman On The EU Reaction To The European Election

Paul Krugman was disturbed by one of the explanations offered for the rise of protest parties in much of Europe.  Krugman believes that it was a mistake to move to a common currency.  One of the EU leaders disagrees. He argues that the current problem in Europe is due to a lack of will.  The troubled states failed to implement austerity measures. The protest vote has nothing to do with the euro. Krugman has his explanation for how the euro led to a misallocation of funds to the southern states which used the money to finance a real estate boom.  The common currency made it impossible for currency devaluation to work its magic.  The imposition of austerity measures on the troubled states were also counterproductive according to Krugman.  He fails to see how other factors may have contributed to the rise of protest parties in Europe.

The UKIP Party in the UK won 28% of the vote in the election.  The UK has its own currency so we need another explanation for the protest vote in the UK.  Krugman might argue that the Cameron government chose to implement austerity measures when it could have used fiscal policies to moderate the recession.  In other words, the protests in the UK are in response to a bad policy decision.  That is wishful thinking, and it is not supported by the facts.  Eurokepticism is one of the platforms of the UKIP Party.  It is a response to a sense that England should not sacrifice its sovereignty.  This is also related to the rise in immigration in the UK.  Some feel that immigrants are negatively affecting the job market and that they are responsible for many social and cultural problems in the UK.  The leader of the UKIP Party stated that the election signaled a rejection by the people of an effort to turn decision making over to technocrats in Brussels.  These themes are consistent with those that boosted votes for protest parties in much of Europe.  The UK may have exported the protest movements to the rest of Europe.

The consequences of this trend in Europe are serious, and they are only partially explained by slow economic growth.  The protest parties in Europe also have a lot in common with the Tea Party in the US.  It opposes the technocrats in Washington; it is strongly nationalistic, and it has a strong anti-immigration bias.  Since the US has a two party system the Tea Party was forced to find a home in the Republican Party.  It has caused the Republican Party to move strongly to the right.  In the UK it will force the Tory Party further to the right, and it may replace the Liberal Democratic Party in a coalition government with the Tories.  This form of populism is always with us.  The inability of governments to solve many social and economic problems has enabled entrepreneurial leaders to build political organizations to tap latent populism to their advantage.  Unfortunately, the Socialist Party in France; the Labour Party in the UK, and the Democratic Party in the US, have abandoned the latent populism in their countries to the far right which has harvested it to their advantage.

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