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Notes for The European Colloquia Conference

English Pages, 30. 11. 2006

Thank you for organizing this important gathering here in Prague, thank you for bringing so many famous economists to this country, and thank you for giving me a chance to say a few words here this morning. You chose a very important historic building for your conference. In the revolution year 1848, in this building, the Slavic congress was held. The Slavic nations of the Austrian monarchy sent their representatives here and they refused the idea to become a part of a pan-German empire.

I would prefer to be here as an ordinary participant, not as an honorary guest who happens to be the president of this country, of the country which – two weeks ago – celebrated the already 17th anniversary of the fall of communism and of the disappearance of a very inefficient centrally administered economy and the beginning of building free society and market economy.

To my great regret, I am here not as an ordinary participant. Seventeen years ago some of us, including me, entered politics. We did it without thinking about it, without planning it, and without being specifically trained for it. I would dare to argue, however, that in one important respect some of us were prepared. We were prepared by having been humble students of economic science. It provided me and us with a very productive instrumentarium, with a very powerful methodology, with a robust theoretical framework, with an extremely useful way of thinking.

I consider it extremely important that those who are genuine economists have the ability:

- to simplify complex problems and concentrate on crucial issues and variables;

- to deal efficiently with empirical data;

- to strictly distinguish positive and normative statements;

- to separate economic categories into constants and variables;

- to subconsciously divide variables into exogenous and endogenous;

- to differentiate between the short, medium and long term effects;

- to apply economic methodology not only to explicit markets;

- to be aware of transaction costs, and of the fact that there are transaction costs whenever we move to a new institutional setting;

- to understand the idea of the margin, e.g. that most decisions involve a little more or a little less;

- to use such notions as substitution and complementarity, as well as trade-off;

- to think in terms of the law of diminishing marginal returns;

- to understand probability, etc.

I do believe that without that and without having such principles “deeply rooted”, it is impossible to be either a good academic economist, or a good politician.

I repeatedly tried to use curves and diagrams at government meetings, in TV talk-shows, at press conferences. I tried to explain that there is not only an inflation-unemployment trade-off, but also an “EU-widening and EU-deepening“ trade-off. That deeper and deeper EU integration brings diminishing returns, and that the growing democratic deficit is a cost, not a benefit. That the Eurozone is not an optimal currency area. That the so called “knowledge economy” is an empty term at least for those who know George Stigler´s “The Economics of Information” and von Hayek´s “Use of Knowledge in Society”, etc.

Your conference is raising some important topics. I will touch only one of them. When I see the current tendencies in the world and especially in Europe – I have in mind new ways of restraining markets, new types of government intervention and of government paternalism, new fashionable adjectives attached to the term market economy, I have in mind post-democracy, the advocacy of rent-seeking under the banner of NGOism and of political correctness, the misunderstandings of the relative importance of market and of government failures, etc. – I am not sure whether Western welfare is or is not sustainable. My doubts about its sustainability are, however, not connected with worries about the availability of natural resources as so many people claim these days but about the restraints on the freedom of individuals to have ideas and to implement them.

We, in this country, are oversensitive to such issues because of our past. I hope you will be rapidly infected with the same virus and will look at the world with the same sharpness. I wish your conference much success.

Václav Klaus, Institute for Studies on Economics and Employment, Žofín Palace, Prague, November 30, 2006