Barbara Kolm, Director of the Austrian Economics Center and Vice President of the Austrian National Bank, gave a talk on “World Economy – State of Play and Prospects” at the Cluj Economics & Business Conference, hosted from 13 October to 15 October at the Romanian National Bank. The last Cluj conference was postponed due to COVID-19 in 2020, and so this time around the focus had appropriately shifted to economies in hard times.
Kolm commenced her keynote by considering the geopolitical and geoeconomic position of Europe. Noting that the continent had shown a lackluster performance on preserving Schengen and guaranteeing the four fundamental European freedoms – of goods, services, capital, and people – Kolm set the economic shock engendered by the Russia-Ukraine war in the larger context of the recent challenges Europe has faced, particularly COVID-19, the energy crisis, and inflation. The economic slowdown caused by COVID-19 lockdowns compelled governments to spend exorbitant sums of money on support packages. Kolm similarly noted that loose monetary policy has been the approach to deal with the energy crisis in Europe and elsewhere.
Despite the efforts of the ECB to stem the tide, Kolm was skeptical that the policies being pursued would prove to be an adequate remedy. Her detailed analysis illustrates that these various challenges are closely connected to current inflation levels. Kolm argued that there were three main causes for inflation today: the increase in the money supply, broken supply chains caused by lockdowns, and increased demand as economies have tried to return to normal. The situation has only been made worse by the persistent dedication to realizing the European Green Deal.
As a valuable corrective, Kolm reminded the audience of the wisdom of the founder of the Austrian School of Economics, Carl Menger, who posed fundamental questions of monetary theory that are worth revisiting today: what are the origins of money? What is the function of good money? What are the necessary contributions of monetary policy in light of this? Without carefully considering such matters, European countries risk continuing to kick the can down the road, embracing panaceas in place of real solutions. Kolm concluded her talk with a plea for Europeans not to fall into the trap of collectivism.
The AEC’s fundamental goal is to promote a free, responsible and prosperous society. Through education and improving public understanding of key economic questions, the AEC promotes the idea of a free market economy and the ideal of a free society.