A few years ago, the prestigious economic publication Journal of Economic Literature dubbed the period from 1980-2005 "the age of Milton Friedman." The article described this era of greater reliance on free markets and privatization, which the Nobel laureate economist Friedman advocated, as arguably the period of greatest economic advance for mankind in world history.
It would be hard to argue against that. As freedom and free markets were on the march, more than 1 billion people worldwide, mostly in China and India, were moved out of poverty. Tens of trillions of dollars of new wealth were created worldwide.
But the past decade could be described as the comeback of socialism. In response to the financial crisis, nations foolheartedly turned to central governments to steer them out of crisis. Government debt, spending and regulatory activity soared all across Europe and in the United States. The Keynesian model that sees government welfare spending as a "stimulus" came storming back in vogue — nowhere more so than in the United States.
Many countries — Greece, Italy, Spain, Portugal and France, as well as the United States — experimented with quasi-socialist governments. Now, the bitter price is being paid.
This, more than anything else, explains why the world is twisting in financial turmoil in recent weeks. Not just Greece, but at least a half a dozen nations appear to be on the verge of bankruptcy because they can't afford the social welfare states they have, and the bills are coming due. The socialists are getting hammered.
Meanwhile, China's government is responding to a manufactured stock market bubble with more promises of Keynesian monetary and fiscal stimulus — interventions that will work there are well as they have in Japan and the United States.
Wall Street is acting as though more government intervention will calm financial markets, when it is the government's excessive intervention that created the crises in the first place. Greece is socialism on steroids — a place where the government gives a lot of things away for free, few people work and millions receive government pensions, paychecks or welfare benefits. Fifty percent of young people don't have a job and over half of Greeks retire before age 60. The wagon is full and no one is left to pull it. Now Greece thinks that the Germans or the EU, or the IMF or the United States is going to pay for it all. The crash is coming very soon and the standard of living in Greece will surely plummet. Thank you, socialism.
But there are so many more dominoes that could come crashing down. Almost all of Europe is a financial sinkhole. The debts as a share of GDP are 100 percent or more and the public spending as a share of GDP is now just shy of 50 percent.
Pundits on the left like Paul Krugman can only lamely respond to the Europe meltdown by arguing that there is "too much austerity" even as debt loads keeps rising every year. The one nation in Europe that didn't use massive Keynesian stimulus, Germany, is the one place where the economy is still functioning.
Dan Mitchell, an economist at the libertarian Cato Institute, has noted that the idea peddled by the Left that nations like Greece are being ruined by austerity is one of the great mythologies of modern times. "The nations in the most economic trouble," he says, "tend to be the ones that have jacked up their government spending and debt the most."
Even in the U.S., socialism is failing. Connecticut is the Greece of the East Coast. It keeps raising taxes and spending, and the state is in perpetual insolvency. The same can be said of Detroit, Chicago and several California cities that can't pay their bills. Puerto Rico is a socialist welfare state, and it may need to go into receivership to pay off tens of billions of unpayable debt.
We are now entering a new era of global finance when government bonds — sovereign debt — will be defaulted on because there is no one left to pay the bills and no one to bail them out. The poor will get poorer, and the middle class will fall behind — the opposite of what socialism promises to deliver.
Shortly before he died in 2006, Milton Friedman lamented: "The enduring lesson of the 20th century is that socialism is a failure, and free markets are a success. But the politicians keep advocating just a little more socialism."
That is precisely what is ailing the world economy today.
Stephen Moore is a distinguished visiting fellow at The Heritage Foundation and author of "Who's the Fairest of Them All?" To find out more about Stephen Moore and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at www.creators.com.