“Keynes is the winner of the day, not Milton Friedman”
23 november 2022 | Václav Klaus
Interview with Václav Klaus
To many of us, no matter how well versed in history, in political affairs or in socioeconomic issues, the present conditions in the West, and especially in Europe, can sometimes seem like the plot of a bad movie. It is often said that history doesn’t repeat itself, but it does rhyme, and what we’re seeing today is a great example of that. Nevertheless, one would have expected that at least some of those in charge of the “big decisions” would have learned something from the mistakes of the past – if not the mistakes of their predecessors, at least their own.
The current political trajectory, which is a mere acceleration of the trend of the past decades toward further centralization and concentration of power in the hands of the “anointed” few, has now clearly entered an especially dangerous phase. The purposeful disempowerment of the individual, the infantilization of the body politic, the suppression of free debate and the demonization of dissent, have brought our societies and our economies to their breaking point.
An actual war is raging in Ukraine, with countless direct and indirect victims, an economic crisis like no other in recent memory is ravaging working households and that “invisible thief”, namely inflation, is wiping out whatever was left of the middle class, forcing once-benefactors of food banks to become their beneficiaries. All the while, it seems that nobody is placing the blame where it belongs.
It is musings and questions like these that we recently discussed with Former President of the Czech Republic, Prof. Ing. Václav Klaus. In the interview that follows, he offers a lot of food of thought, drawing from his own extensive experience in politics during the most challenging times in modern memory and his deep understanding of geopolitics, economics and human nature itself.
Claudio Grass (CG): Although one can argue that Europe has been in a state of crisis for at least a decade, it can be argued that this time it’s different. There’s an actual war on its doorstep and everyone is paying the price, in one form or another, not just the direct adversaries. Russia’s advances have essentially come to a standstill, while cracks in the European economy and tears in the social fabric are getting worse by the day. How long do you think this can go on and what are your biggest concerns about the continuation of this conflict?
Václav Klaus (VK): I agree that it is different now. The current crisis, which is much deeper than the situations that we (or the politicians) irresponsibly labelled as “crises” in the past. This is the outcome of a unique combination of factors and causes. Some of them are directly visible and make headlines, others are invisible and therefore not sufficiently exposed or discussed.
The first group of factors consists of individual events, whereas the second one consists of slow, incremental changes of the political, social and economic system. They are not statistically measurable. No one can see them, because they happen in small steps. Nevertheless, it is this second set of developments that is more worrying.
War, the energy crisis and mass migration make headlines, but systemic changes don’t. I am afraid that we are not paying attention to how far we have already moved away from free markets and political democracy.
CG: As we habitually see during every conflict, propaganda machines go on overdrive and fear-mongering campaigns spread panic and division among the population. A few weeks into this war and increasingly ever since, blanket-hate for “all of the West” or “all Russians” is being propagated. How do you assess collectivist viewpoints like these?
VK: I sometimes erroneously underestimate the role of propaganda, because I believe that by not watching TV or by being insulated from social networks, I am immune to it. I admit that it is a wrong perspective.
Direct propaganda is one thing, but the general one-sidedness and bias of the media is much worse. What we are experiencing now is similar to what we went through last time in the 1950s and 1960s. I admire George Orwell, I consider him a genius and his book “1984” a historic achievement. But I was always opposed to the hyperbolic and overdramatic use of Orwellian aphorisms to describe real-world affairs. I was afraid to trivialize the situation or my enemies and opponents. It is different now. Orwell has become directly applicable.
CG: There are growing calls in Europe for a “Marshall Plan” for Ukraine, the loudest among those coming from the likes of German Chancellor Olaf Scholz and European Commission President Ursula von der Leyen. Rebuilding Ukraine is estimated to cost around $350 billion, according to the World Bank. Given the results of the original Marshall Plan, do you think repeating it now would be a good idea?
VK: As an economist, I do not believe in Marshall Plans in general and in the post-second world war Marshall Plan in particular. The importance of the original one was propagandistically overplayed.
I know of studies that demonstrate its marginal role. Postwar European reconstruction was the work of Ludwig Erhard, not George Marshall. The role of foreign aid has been canonically exposed by Peter Bauer, Deepak Lal and others. Foreign aid pleases the donors more than the recipients. I see it now in the eyes of Czech politicians. It is not their own money they’re giving away.
CG: While the war has monopolized media attention and political speeches, there are a lot more problems and threats that Europeans are facing and most of them preceded it, but no-one really paid attention. Inflation is the most severe of those and it’s forcing countless households to make impossible choices. Western politicians are blaming it all on “Putin’s war”, but do you think that monetary and fiscal policy makers in the Eurozone in particular have to assume any responsibility themselves?
VK: I consider inflation to be the most important problem these days. It’s not only about Putin, it’s about the Green Deal and especially about the inflationary monetary and fiscal policies, which became “normal” after the 2008-2009 recession.
Quantitative easing and zero (or negative) interest rates in central bank monetary policy and deficit financing in government fiscal policies created macroeconomic disequilibrium. We are living in an inflationary atmosphere and can’t get rid of it without fundamental breaks in monetary and fiscal policies.
To my great regret, Keynes is the winner of the day, not Milton Friedman. This is something I did not expect, but that is the new reality. Friedman, not Keynes, was my hero in the dark days of communism and it is frustrating that in the bright days of “the brave new world” of the EU and of “liberal democracies”, Keynes is back on the pedestal.
CG: We’ve seen a lot of misguided policies adopted in the EU that divided the public and eventually inflicted a lot of damage on the economy and on society at large, from immigration to the “green agenda”. There have been widespread protests over the years, but little changed, if anything at all. However, do you expect the public anger to be more fiery and more effective this time, as more and more people struggle to put food on the table?
VK: The EU policies are absolutely wrong and therefore damaging. You mention potential protests – I don’t see any. Europe and the whole of the West is marching to the left, towards collectivism, towards state interventionism. If there are any protests, they are against the market.
There are practically no meaningful protests against the European system of massive state interventionism and the existing ones cannot change anything. There is a dissatisfaction, but no real protests. People still believe in the possibility of improving the functioning of the existing system, they still call it a market economy and a parliamentary democracy. This is, however, not a correct interpretation of the current state of affairs.
CG: Having lived under communism and having experienced directly the way the State uses fear to manipulate and control the populace, to muzzle dissent and open debate and to enforce policies that no free-thinking, rational individual would otherwise accept. Even though our politicians today insist that our Western democracies are all about liberty, core values like freedom of speech or individual financial sovereignty have been increasingly curbed over the years. Do you think any of this is reversible or are we destined to repeat the mistakes of the past that you had to live through?
VK: It is undoubtedly reversible, but I don’t see anyone ready and able to do it. What is necessary is not just marginal reforms. There needs to be a fundamental transformation of the system and I am not sure the voters are interested in that.
Changes may come, but not in the foreseeable future. I know it sounds pessimistic, but I think that making a change is not a task for me or for my children, but for my grandchildren.
Claudio Grass, Hünenberg See, Switzerland