Europeans Discover the Myth About ‘Safety Nets’ the Hard Way, by John Tamny

Cranking out a fiat currency is not a safety net. The only real “safety net” is one based on actual production. From John Tamny at realclearmarkets.com:

Economic discussions would be much better if it were understood that no one receives dollar, euro, yen, pound or yuan “aid.” They receive the goods that those currencies can be exchanged for. Money on its own doesn’t feed, shelter or clothe. It’s only useful insofar as it’s accepted by the producers of actual goods and services.

This simple truth is hopefully useful as a backdrop to what’s happening in Europe right now. As Liz Alderman of the New York Times reported on Tuesday, Europeans are presently suffering rather painful job cuts. In Alderman’s words, “At BP, 10,000 jobs. At Lufthansa, 22,000. At Renault, 14,600.”

To the half awake in our midst, what’s happening is a statement of the obvious. Some of the most stringent lockdowns related to the coronavirus happened in Europe. The shutdowns in France were the strictest, including limits on simply leaving one’s home. The virus spread despite, but so did economic contraction.

That contraction spread was a blinding glimpse of the obvious. Lockdowns by their very name limit activity, including that related to work. With Europeans suddenly experiencing reduced personal and economic mobility, production was naturally going to decline.

All that, plus the only closed economy is the world economy. A not insubstantial portion of Europe’s economic vitality is a consequence of production elsewhere. Translated, tourism looms large on a continent that increasingly limited the inflow of tourists. European goods of the car and clothes variety similarly enchant the world’s citizenry, but with global demand a consequence of supplying first, it’s no insight to say that Europe’s countries suffered economically the lockdowns that took place far from Europe.

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