The Good, the Bad and the Plain Crazy

The EU Commissariat has just made an announcement that is both good and bad. Let us start with the good: According to European press reports, Chief Commissar Barroso left the commission with an inheritance of 452 legislative initiatives, including the “harmonization of standards of maternity protection”, “uniform energy taxation and environmental protection legislation” and “forcing all nations to implement waste recycling” (if you want to know why waste recycling, which superficially sounds like a great idea, is yet another complete etatiste charade, read this article in which Per Bylund deconstructs the recycling myth using socialist paradise Sweden as an example).

Anyway, the new commissariat under JC Juncker has decided to simply strike 83 of Barroso’s initiatives legacy completely, put a large part of it on hold, and instead concentrate only on a handful – 23 to start with. Also, among the things to be tackled is an endeavor to actually cut red tape (we will believe it when we see it). According to the commissariats own words:

 

“When laws are no longer fit for purpose, or impose too much burden, they will be reviewed and amended to make EU law lighter, simpler and less costly.”

 

So much for the “good”.

However, it is very unfortunate that many of the remaining initiatives they have decided to concentrate on (the bad) mainly consist of bureaucratic nonsense of the finest. Among the top initiatives we find for example: The “€315 billion investment offensive”, an “ambitious digital single market package” (under the leadership of the economically and technologically illiterate digital commissar Mr. Öttinger, whom we have profiled before), and “fair taxation” (the term “fair” in conjunction with the term taxation always means only one thing: higher taxes).

 

We want to once again focus on the bizarre “investment initiative” on this occasion. This project is one we would term both “bad” and “plain crazy”, although the political cronies who stand to be enriched by it would of course disagree.

Passenger stairs are seen in front of the airport in Lodz

The “ghost airport” at Lodz

Photo credit: Reuters

Modern-Day Bridges to Nowhere

For one thing, the EU doesn’t have the money for the “investment initiative”. As Mish has pointed out, the plan is to employ leverage, and one of the enticements offered to private sector participants are “EU guarantees against first losses”. Heads you win, tails we lose. The “we” in this sentence are the EU’s tax cows, who will be paying through the nose for the losses to come.

Why are we so certain that there will be losses? For one thing, the very fact that without the intervention of the politico-bureaucratic apparatus and its carrot of “loss guarantees” no-one would even think of undertaking any of these investment projects proves ipso facto that they are not economically viable. If they were, there would be no need to subsidize them: the private sector would undertake them voluntarily.

Moreover, there is no way for the apparatchiks to ascertain the opportunity cost associated with these projects. They are faced with a variant of the socialist calculation problem. It is a “variant”, because they can actually look at market prices in what is left of the market economy. They are not completely deprived of a basis for economic calculation.

However, since there is no profit motive involved on their part, the question whether the economic resources that will have to be diverted to their projects could not have been used to satisfy more urgent consumer wants will remain unanswered. In fact, it is a virtual certainty that this diversion of resources will result in intra-temporal resource misallocation (we are differentiating here between the inter-temporal misallocation of capital due to monetary pumping and interest rate suppression, and the intra-temporal variety through government spending and subsidization of economically non-viable projects). It is important to realize that the end result will be a production structure out of line with actual consumer wishes and demands, regardless of the precise type of malinvestment that occurs.

For those who want to see some empirical examples that buttress the above contentions, we can offer a glimpse of past EU subsidized investment projects, in this case the example of Poland’s “ghost airports”. Ghost airports are the modern-day equivalent of “bridges to nowhere”, resp. Keynesian pyramid building.

 

“The European Union has given Poland more than 100 million euros ($125 million) to build at least three “ghost” airports in places where there are not enough passengers to keep them in business. The result is gleaming new airport terminals which, even at the peak of the holiday season, echo to the sound of empty concourses and spend millions trying to attract airlines.

Poland is not the only country in Europe to have built airports that struggle to attract flights. Around 80 airports in Europe attract fewer than 1 million passengers a year, and about three-quarters of those are in the red, according to industry body Airports Council International. Some cost much more to build than the Polish projects. One airport in eastern Spain, open for three years, has so far received not a single flight.

But Poland is striking because the country received so much money for its projects from EU funds.

Poland received 615.7 million euros in EU support for airports between 2007 and 2013, according to figures supplied to Reuters by the European Commission. That was almost twice as much as the next biggest recipient, Spain, and more than a third of all member states’ money for airports. The government declined to provide all the information on which it based its decisions to invest in the airports, but Reuters has reviewed data on three sites where traffic fell dramatically short of forecasts.

Poland is often touted by Brussels as one of the most efficient users of EU aid, and there is no suggestion the country used EU airport money corruptly. European help has been vital in improving Poland’s aviation infrastructure, only a small share of the country’s airport spending has been on white elephants, and passenger shortfalls may have been exacerbated by the 2008 global financial crisis. Spokespeople at some airports said the projects could be considered a success because they were creating jobs, bringing in tourists, and driving investment in the regional economy.

But it is clear mistakes were made in Poland, planning officials and aviation executives say. The whole experience raises questions about how the government will handle the next big injection of EU money, which it expects to be 82 billion euros over the next seven years.

The problem is most striking at the recently rebuilt Lodz passenger terminal, where passenger numbers in 2013 fell almost one million short of forecasts, according to European Commission documents examined by Reuters.

On a relatively busy day this summer, just four flights arrived and four departed. In between, the place was almost deserted. In the early afternoon a single passenger, a woman in a blue-and-white striped T-shirt, sat in a 72-seat waiting area. Outside on the tarmac, five sets of movable steps stood waiting for a jet to land.

Where there aren’t enough passengers to make an airport viable, local governments keep them on life support through subsidies, according to a report by CEE Bankwatch Network, a non-governmental watchdog. The beneficiaries have often been the airlines that use them.”

 

(emphasis added)

 

Almost needless to say, the contention by “some (unnamed) spokespersons” that “the projects could be considered a success because they were creating jobs, bringing in tourists, and driving investment in the regional economy” is a prime example of the “broken window fallacy”. It fails to consider that the funds could have been used for something else, namely a project that actually does make commercial sense.

The Reuters report stresses that there is no suggestion that “corruption was involved”, and one doesn’t need to assume that there was corruption in order to prove the point – which is mainly that these are examples of large-scale capital malinvestment, involuntarily funded by EU tax payers. We would however note that corruption is nowhere more likely than in such state-funded projects – the example of the EU funded Italian road in Calabria (scroll down to “Ndrangetha sponsored by EU subsidies”) that remains forever unfinished and is lining the pockets of the mafia is a glaring example.

 

The luggage hall is seen at the airport in LodzLodz airport baggage claim area on a typical day.

Photo credit: Reuters

 

Another important detail is the “cui bono” question. Thus we read that these useless ghost airports continue to require subsidies, lest they would have to be closed down, as they keep losing money every day. And who are the beneficiaries? The airlines that use them – or we should perhaps better say: the airlines that don’t use them.

 

Conclusion:

Poland’s ghost airports should be seen as a clear warning that a massive bout of malinvestment is about to be perpetrated if the EU really pushes through its €315 billion state-funded “infrastructure investment” boondoggle. However, even if we didn’t have such empirical examples at our disposal, economic theory clearly suggests that such undertakings will end up as a giant waste of scarce resources. Can Europe really afford such a waste of scarce capital at this juncture?

Instead of throwing money at the wall in the hope that some of it will stick, EU governments should endeavor to restore free market principles in Europe, by cutting down on regulations and lowering taxes. That would promise to be productive.

 

A plane is seen landing on the tarmac through the window of the control tower at the airport in LodzA rare airplane landing in Lodz – and it’s a pretty small aircraft.

Photo credit: Reuters

 

 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Gold Price Skyrockets in India after Currency Ban – Part III
      When Money Dies In part-I of the dispatch we talked about what happened during the first two days after Indian Prime Minister, Narendra Modi banned Rs 500 and Rs 1000 banknotes, comprising of 88% of the monetary value of cash in circulation. In part-II, we talked about the scenes, chaos, desperation, and massive loss of productive capacity that this ban had led to over the next few days.   Indian prime minister Narendra Modi – another finger-wagger, as can be seen in this...
  • Gold Price Skyrockets in India after Currency Ban – Part IV
      A Market Gripped by Fear The Indian Prime Minister announced on 8th November 2016 that Rs 500 and Rs 1,000 banknotes would no longer be legal tender. Linked are Part-I, Part-II and Part-III updates on the rapidly encroaching police state. The economic and social mess that Modi has created is unprecedented. It will go down in history as an epitome of naivety and arrogance due to Modi’s self-centered desire to increase tax-collection at any cost.   Indian jewelry...
  • A Note on Gold and India – What is Driving the Gold Price?
      Hidden Motives It is well-known that India's government wants to coerce its population into “modernizing” its financial behavior and abandoning its traditions. The recent ban on large-denomination banknotes was not only meant to fight corruption.   Obviously, this very bad Indian has way too much cash. Just look at him, he looks suspicious! Photo via thenewsminute.com   In fact, as our friend Jayant Bhandari has pointed out, fresh avenues for corruption ...
  • Gold Price Skyrockets in India after Currency Ban – Part V
      A Brief Recap India's Prime Minister announced on 8th November 2016 that Rs 500 and Rs 1,000 banknotes will no longer be legal tender. Linked are Part-I, Part-II, Part-III, and Part-IV, which provide updates on the rapidly encroaching police state Expect a continuation of new social engineering notifications, each sabotaging wealth-creation, confiscating people’s wealth, and tyrannizing those who refuse to be a part of the herd, in the process destroying the very backbone of the...
  • Attaining Self-Destruct Velocity
      Bad Monday Some Monday mornings are better than others.  Others are worse than some.  For one Amazon employee, this past Monday morning was particularly bad. No doubt, the poor fellow would have been better off he’d called in sick to work.  Such a simple decision would have saved him from extreme agony.  But, unfortunately, he showed up at Amazon’s Seattle headquarters and put on a public and painful display of madness.   Good-bye cruel world! On this our planet,...
  • All Aboard! Trump’s Express Train to the Future
      Free Money! BALTIMORE – Last week, the Dow punched up above 19,000 – a new all-time record. And on Monday, the Dow, the S&P 500, the Nasdaq, and the small-cap Russell 2000 each hit new all-time highs. The last time that happened was on the last day of December 1999.   Ironically, two events that were almost universally expected to trigger large stock market declines were followed by quite rapid and strong gains. Would the market have fallen if Hillary Clinton had won...
  • India's Currency Debacle – An Interview with Jayant Bhandari
      A Major Crisis Last week Jayant Bhandari related the story of the overnight ban of certain banknotes in India under cover of “stamping out corruption” (see Gold Price Skyrockets In India after Currency Ban Part 1 and Part 2 for the details).   Banned 500 rupee banknotes   The problem is inter alia that the sudden ban of these banknotes has hit the Indian economy quite hard, given that 97% of all transactions in the country are cash-based. Not only that, it has...
  • Will the Swamp Swallow Trump?
      Permanently Skewed TRUMP HOTEL, New York – Trump’s rambling army – professionals, amateurs, camp followers, and profiteers – is marching south, down the I-95 corridor. There, on the banks of the Potomac, it will fight its next big battle.   Lieutenants in Trump's army: Bannon, Flynn & Sessions Photo credit: Drew Angerer / AFP   Here at the Diary, we do not like to get involved in politics. But this is a special time in the history of our planet – a...
  • There Are Two Types of Credit — One of Them Leads to Booms and Busts
      Stumped by the Bust In the slump of a cycle, businesses that were thriving begin to experience difficulties or go under. They do so not because of firm-specific entrepreneurial errors but rather in tandem with whole sectors of the economy. People who were wealthy yesterday have become poor today. Factories that were busy yesterday are shut down today, and workers are out of jobs.   What has caused the bust? The modern-day economic orthodoxy continues to be unable to provide...
  • Gold Bull Market Remains Intact – Long Term Fundamentals Outweigh Short Term Market Gyrations
      A Strong First Half of the Year, Followed by Another Retreat In early 2016 gold had a big bull run. The precious metal rose close to 25% this year, pushed higher in a summer rally that peaked on July 10th. Gold experienced a bumpy ride over the remainder of the summer though, as investors became increasingly concerned about a potential rate hike by the Federal Reserve. Uncertainty returned to gold market and has intensified further since then.   Initially, gold rallied sharply...
  • Too Early for “Inflation Bets”?
      The Trump Trade After 35 years of waiting... so many false signals... so often deceived... so often disappointed... bond bears gathered on rooftops as though awaiting the Second Coming. Many times, investors have said to themselves, “This is it! This is the end of the Great Bull Market in Bonds!”   The long bond's long cycle – red rectangles indicate when the post 1980 bull market was held to be “over” or “over for sure” or “100% over”, etc.  We have...
  • US True Money Supply Growth Jumps, Part 1: A Shift in Liabilities
      A Very Odd Growth Spurt in the True Money Supply The growth rates of various “Austrian” measures of the US money supply (such as TMS-2 and money AMS) have accelerated significantly in recent months.  That is quite surprising, as the Fed hasn't been engaged in QE for quite some time and year-on-year growth in commercial bank credit has actually slowed down rather than accelerating of late. The only exception to this is mortgage lending growth - at least until recently. Growth in...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com