Voodoo Economics Makes A Comeback

What people here (wrongly) call populism is what we in American call pie in the sky, something just too good to be true. And seldom has one seen such a tasty-looking tidbit of balderdash as the incumbent President's economic predictions made on Independence Day, as our experts confirm in this issue. Whoever is advising Ukraine's chief executive on the economy should be taken at gunpoint to standard American college courses on micro and macroeconomics, because that adviser is absolutely oblivious to even the most basic economic facts of life. Rosy predictions of rising GDP and a million new jobs in Ukraine are pure nonsense given the way the Ukrainian economy operates, and this simply cannot change until some basic things are changed first.

«The business of America is business» might seem a hackneyed clich О , but one reason things sometimes become clich О s is because they are so true. Business has to be the business of any country hoping for economic growth, and Ukraine's business climate is abysmal because the country has more state than it can afford, which in turn compels the government to impose more in taxes than businesses can afford to pay or the state is able to collect, thereby forcing what ought to be legitimate business into either the shadows or bankruptcy. If you want economic growth and new jobs, you have to create a situation where people with money have an incentive to invest it in hopes of making more money. Investors are not philanthropists: they put their money where they think it stands the best chance of turning a profit. This might seem a bit greedy, but nobody has yet come up with a more productive economic system, a system better capable of creating decently paying jobs, stimulating demand, and generating more wealth for society as a whole.

Ukraine has one of the worst investment climates on earth because its tax and regulatory systems are such that one can survive only if one has people in government willing to look the other way and/or shut down the competition. This means the government, not outdoing the competition, determines what succeeds economically. And without competition, there is no mechanism to foster the expansion of more effective resource utilization and discourage less effective economic activity. This means labor productivity remains low, and people are poor. If the President of Ukraine still does not understand this, one can only hope that the current electoral competition will give this country a more effective successor.