Chain Questions Raised by Europe’s Floods

William Krehm

Europe’s floods are wreaking great physical damage, but no greater than their toll on institutionalized dogma.

Before we embark on our tale, we would advise our readers to check their calendars to confirm that the year is indeed 2002, a half-century after the governments of Germany and Japan were already well advanced in rebuilding countries that had been flattened in the war. And in the process they helped make possible one of the greatest mass migrations that gave both the defeated lands and the victorious allies the most prosperous years of their history.

What then is the trouble today? Let’s first gauge the extent of the confusion. The Wall Street Journal (20/1, "Flood Damage Forces Germany to Delay Tax Cut" by Philip Shishkin and G. Thomas Sims) informs us:

"Germany and other nearby governments are taking drastic steps in an attempt to finance billions of euros in damage from the worst flooding to hit Central Europe in more than a century.

"German Chancellor Gerhard Schroeder unexpectedly announced plans to postpone 6.9 billion euros (US$6.8 billion) in tax cuts scheduled for next year to free up funds for an estimated 15 billion euros in damages. The Czech Republic, meanwhile, canceled a $1.2 billion plan to modernize its air force, hoping to redirect the money to cover flood damage estimated at nearly $2.8 billion.

"The effort in Germany to pay for damage without incurring new debt underscores the limited resources of the cash-strapped country, which was already brushing up against European Union spending limits before the floods hit Bavaria and eastern Germany." The European Union requires that its members produce a government surplus of 3% of the GDP.

But, "meanwhile, the Czech Republic’s decision not to replace its old fleet of Soviet-built MIG fighter jets with 24 Western planes follows a similar move in Austria, which said it would reduce the size of a planned order of new Eurofighter jets to help free up money for flood aid."

Is God a Frustrated Keynesian?

A propos of which, some years ago, the late Lynn Turgeon coined the phrase "God is a Keynesian, perhaps the last one around." Nor is hard to understand the reasons for the Almighty’s occasional anger. Like so many others, Turgeon had noted that when natural disasters occur – especially in God’s own country – tornadoes, forest fires, earthquakes – jobs increase, cash registers tinkle more quickly, and the GDP goes up. And with a vibrant economy, government revenues surge, and a frowning system smiles once more. But why must we await a disaster to use our economy sensibly, and not only as a private hunting ground for the greedy privileged?

What is the difficulty in financing the clean-up of the present floods?

Let’s give the word to the WSJ once more" "Some economists hope the flood repairs could revive Germany’s stagnant economy later this year, even though a loss in output is likely during the current quarter. Elga Bartsch, an economist with Morgan Stanley in London, estimates that Germany could gain as much as a point in economic growth over the next year as reconstruction takes place."

GDP Concept under Water

Doesn’t that mean that if reconstruction does not take place, Germany would be missing this "growth." (To simplify things, we are assuming it’s all going to be good and not just add to the pollution and to the cementing over of Mother Earth that contributed to the floods.) And if the damage were not duly repaired, would we not have to deduct the unrepaired damage from the economy’s balance sheet? Doesn’t that suggest that the very concept of the GDP is under water?

And why would the Chancellor not mention that with East Germany’s unemployment in the upper double-digit region there would be considerable savings not only in unemployment insurance, but in the moral waste of the unemployed?

But these are seditious chain questions. Ask one, and inevitably an even more disturbing one springs up as an answer. Why would a government, especially one headed by a Socialist politician, have to wait for a national disaster to put willing unemployed to work?

William Krehm

— from Economic Reform, October 2002