The FourFold Way - Kevin Hannon

 UK and Eurozone Responses to the Debt Crisis Explained: Many European countries have been living beyond their means for years. They gave themselves high standards of living using cheap credit flows from abroad. The UK was

an especially clear example of that. The era of easy credit flows came to an abrupt end from the USA banking crisis after the collapse of the Lehman Brothers bank. Now people in European countries and the USA are having to try to pay their way.

To do so requires a fall in living standards until such time as growth can overcome mounting debt burdens and recover lost living standards. It is elementary economic theory to explain how such a fall in living standards can
happen. I call it “The Fourfold Way for Impoverishing the People”.

1. Devaluation: this reduces the purchasing power of people’s money in their own
currency vis-à-vis the rest of the world.

2. Inflation: this reduces the value of money for buying goods and service inside the
country in which inflation is happening.

3. Increase taxes: this leaves people with less money to buy anything either in their own
country or abroad. (Cutting wages has the same effect.)

4. Cutting public services: this provides people with less public goods for their taxes,
increased or not.

1 & 2 are the ways of stealth and silence. 3 & 4 are the ways to loud political shrieks and protests. So now it is easy to identify the differences between UK and Eurozone responses to the debt crisis and economic recession. The UK

has 1,2,3 & 4 in abundance. Whereas 3 & 4 are the only purgatives available to Eurozone countries. The Germans, people and government and central bank are very unwilling to be impoverished by methods 1 and 2, having tried

them thoroughly in the 1920s and 1930s. They will not have them in the Eurozone, they would rather pay their way instead. That is called being inflexible.The UK by contrast is very flexible in its policy mix and uses 1,2,3,4 so that

wealth can shrink by stealth. In short, when it comes to doctoring a national economy, and amputating a bit of standard of living, UK governments use anaesthetics: namely devaluation and inflation. Eurozone governments

don’t use such anaesthetics, hence the shrieks and protests on the streets of many European cities. Their clumsy surgeons of economics don’t know how to keep their patients drowsy the way ours do in the UK. 21.5.2011