Today in the Wall Street Journal's opinion page, University of Chicago finance professor John H. Cochrane has a hard-hitting and powerful analysis of the Greek sovereign debt crisis and its implications entitled "Greek Myths and the Euro Tragedy" (hat tip: Scott Grannis).
It should be required reading for all those who wish to understand the situation through the clear lens of economic logic, rather than through the soundbites and misleading assertions that have been repeated ad infinitum by politicians and the media in recent weeks.
At the end of his piece, Professor Cochrane declares: "The only way to solve the underlying euro-zone fiscal mess (and our own) is to slash government spending and to focus on growth. Countries only pay off debts by growing out of them."
This is an incredibly important point on many levels, and deserves to be understood by all interested observers, including politicians and all investors. Economic growth is the answer to the fiscal woes of Europe, and everywhere else -- not "austerity" (a la the IMF), not bailouts, and not government spending.
Pioneering thinker, author, futurist, economist, and investor George Gilder provides some crucial insights into this concept in a recent interview with Switzerland's Daily Bell.
He makes several important distinctions and all of them point to the importance of one thing: human creativity, the real engine of economic growth. He focuses on this single magical ingredient rather than on red herrings such as "free markets" or "spending cuts."
At one point in the interview, he says "there can be no free markets without free entrepreneurs. Entrepreneurs are not tools of the market, they are creators of new tools. The entrepreneur precedes the market. Without him, there is no market." In a later related point he says, "I wrote more about the fruits of enterprise and creativity than about the perfection of 'free markets' themselves. Like 'perfect competition,' a cant of 'free markets' has become an excuse for oppressive regulations and controls. As markets are never finally free or competition ever perfect, critics can always find reasons for new beadles and bureaucrats."
To enable the human creativity that alone drives growth, George Gilder stresses the need for freedom, saying "Only freedom can enable innovation and empower progress." Specifically, in the interview he mentions low tax rates and sound monetary policy -- in other words, freedom from excessive taxes and inflation.
Later, he warns against "movement libertarians" who always prefer "the quixotic ideal (radical spending cuts) to the feasible improvement of lower tax rates."
It strikes us that this focus on growth (and its essential elements of human creativity and innovation) is what is missing from most discussions of current economic events, and even from most discussions of investment in general. Professor Cochrane has done investors a great service by framing the discussion of the Greek crisis in terms of growth, and by exploding the myth that spending cuts, creditor bailouts, or greater government spending of taxpayer funds (and the higher taxes that accompany them) can ever solve the problem.
Unfortunately, there are many politicians of all political stripes who do not understand this critical insight (see for example the recent comments from the independent National Commission on Fiscal Responsibility and Reform).
Investors should think about these lessons in light of their own investments. They should analyze every investment in terms of growth, whether they are lending money or buying shares. When you buy the bonds of a company, you are lending money to that company, just as Greek bondholders were loaning money to that nation. All countries, and all companies, are not equal in their current potential for growth.
In times when the obstacles to human innovation mentioned by George Gilder are on the rise (namely, taxes and inflation), seeking out reservoirs of innovation and creativity become more important than ever.
We have written about this subject at length in previous posts, and recommend revisiting some of them, such as "The Four Pillars," "What Benjamin Franklin can teach us about free enterprise," and "The Question of our Time."
Subscribe (no cost) to receive new posts from the Taylor Frigon Advisor via email -- click here.
For later posts dealing with the same subject, see also:
It should be required reading for all those who wish to understand the situation through the clear lens of economic logic, rather than through the soundbites and misleading assertions that have been repeated ad infinitum by politicians and the media in recent weeks.
At the end of his piece, Professor Cochrane declares: "The only way to solve the underlying euro-zone fiscal mess (and our own) is to slash government spending and to focus on growth. Countries only pay off debts by growing out of them."
This is an incredibly important point on many levels, and deserves to be understood by all interested observers, including politicians and all investors. Economic growth is the answer to the fiscal woes of Europe, and everywhere else -- not "austerity" (a la the IMF), not bailouts, and not government spending.
Pioneering thinker, author, futurist, economist, and investor George Gilder provides some crucial insights into this concept in a recent interview with Switzerland's Daily Bell.
He makes several important distinctions and all of them point to the importance of one thing: human creativity, the real engine of economic growth. He focuses on this single magical ingredient rather than on red herrings such as "free markets" or "spending cuts."
At one point in the interview, he says "there can be no free markets without free entrepreneurs. Entrepreneurs are not tools of the market, they are creators of new tools. The entrepreneur precedes the market. Without him, there is no market." In a later related point he says, "I wrote more about the fruits of enterprise and creativity than about the perfection of 'free markets' themselves. Like 'perfect competition,' a cant of 'free markets' has become an excuse for oppressive regulations and controls. As markets are never finally free or competition ever perfect, critics can always find reasons for new beadles and bureaucrats."
To enable the human creativity that alone drives growth, George Gilder stresses the need for freedom, saying "Only freedom can enable innovation and empower progress." Specifically, in the interview he mentions low tax rates and sound monetary policy -- in other words, freedom from excessive taxes and inflation.
Later, he warns against "movement libertarians" who always prefer "the quixotic ideal (radical spending cuts) to the feasible improvement of lower tax rates."
It strikes us that this focus on growth (and its essential elements of human creativity and innovation) is what is missing from most discussions of current economic events, and even from most discussions of investment in general. Professor Cochrane has done investors a great service by framing the discussion of the Greek crisis in terms of growth, and by exploding the myth that spending cuts, creditor bailouts, or greater government spending of taxpayer funds (and the higher taxes that accompany them) can ever solve the problem.
Unfortunately, there are many politicians of all political stripes who do not understand this critical insight (see for example the recent comments from the independent National Commission on Fiscal Responsibility and Reform).
Investors should think about these lessons in light of their own investments. They should analyze every investment in terms of growth, whether they are lending money or buying shares. When you buy the bonds of a company, you are lending money to that company, just as Greek bondholders were loaning money to that nation. All countries, and all companies, are not equal in their current potential for growth.
In times when the obstacles to human innovation mentioned by George Gilder are on the rise (namely, taxes and inflation), seeking out reservoirs of innovation and creativity become more important than ever.
We have written about this subject at length in previous posts, and recommend revisiting some of them, such as "The Four Pillars," "What Benjamin Franklin can teach us about free enterprise," and "The Question of our Time."
Subscribe (no cost) to receive new posts from the Taylor Frigon Advisor via email -- click here.
For later posts dealing with the same subject, see also:
- "Lower tax rates stimulate growth" 07/27/2010.
- "The political winds are swirling" 09/15/2010.
- "Glenn Beck is an economic butterbar" 11/04/2010.
- "European debt issues and the primacy of growth" 11/08/2010.
- "A growth-based perspective on income investing" 11/15/2010.
- "Another wake-up call" 11/29/2010.
- "The 'wealthiest' rates matter to everyone" 12/03/2010.
- "The question of our time, continued" 03/14/2011.
- "The silver lining to the S&P change in outlook" 04/19/2011.
