Each and every new year people make bold statements about changes (for the better) they are decided to apply to their lives from the very beginning of said year. Now replace the word 'people' with 'government' and 'lives' with 'countries'. Does this sound familiar? Yes, every government promises to change the country for better, but as it happens with people, most of them end up doing the same thing, committing the same errors over and over again.
This year should different though, numerous countries are in a situation where, if they keep doing the same, they will not stay the same, but they will go deep down. When the global outlook was (artificially) good, governments' mistakes were easily eclipsed by the housing boom, low unemployment rates, easy money and a ridiculously big government spending. Not anymore.
Getting carried away by a circumstantial recovery
The end of 2010 has brought some pale light at the end of the tunnel, recession fears have faded as the markets gave credibility to their own affirmations that we had hit rock bottom, everything is starting to move again, catch the train before it gets to cruise speed! Well, it is their business to say so, even though you can short stocks and earn money on bear markets, if you were to ask I am sure everybody would tell you it is easier to win on a bull market.
Do not get me wrong, there is a real-world recovery behind this move from the markets: unemployment has slightly gone down, deflation is not an immediate issue and consumption has not fallen to the ground (thank the holiday period). But it is still a circumstantial recovery, the holiday period has helped both employment and consumption and deflation is stopped by the low money price.
Stop the insanity, try something different
Albert Einstein is attributed a very wise quote (it is also attributed to writer Rita Mae Brown) that says insanity is doing the same thing over and over again and expecting different results. That is exactly what governments are doing. Where are the structural changes to enable a real recovery? Nothing has changed yet.
First error, housing stimulus. Governments must assume that if a housing boom put us in this hole, housing is not going to get us out of it... Subsidizing mortgages is plainly ridiculous, if you really think you need to subsidize something real estate-related, and that would be highly debatable, at least let it be renting. Renting indirectly benefits employment by making people more open to relocating. Opportunities for employment can be scarce in some sectors, if you can relocate for a job you will have an edge against the competition.
An example of this theory is Germany. Lots of people know Germany is one of the most competitive economies in the world, what they do not probably know is that only about 40% Germans own a house, the others rent.
Make the public spending worth its value. Stop subsidizing declining industries and focus on competitive and future-proof ones. What is the reason for subsidizing a industry that cannot compete against its foreign peers by itself? Two examples: car making in the US or coal mining in Spain. If a business is not profitable anymore, do not lengthen its agony, it becomes a black hole... Instead, try spending that public money recycling the people and the resources dedicated to it to something different and with a brighter future. Alternative energies come to mind.
Try building new infrastructures. Infrastructures that once done will help you be more efficient and competitive. New high-speed rail networks, better airports, bigger docks, safer roads. Whatever applies to your country.
Drop the ballast. With a recovery this weak, it is not the moment to stop government spending, but it is not the moment to make it grow uncontained either. If you want to spend the money in useful things, then privatizing some inefficient and not-strategic public functions is the way to go. No government is being brave enough to do this. Of course it would be a highly unpopular measure (see the late Greek strikes) but if something has become an unbearable load, it is a matter of responsibility to get rid of it...
I am not optimistic about governments embracing this resolutions for the present year, but they should already know what happens if they do not. The examples of Iceland, Greece, Ireland and the (probably) forthcoming Portugal should be enough.
First error, housing stimulus. Governments must assume that if a housing boom put us in this hole, housing is not going to get us out of it... Subsidizing mortgages is plainly ridiculous, if you really think you need to subsidize something real estate-related, and that would be highly debatable, at least let it be renting. Renting indirectly benefits employment by making people more open to relocating. Opportunities for employment can be scarce in some sectors, if you can relocate for a job you will have an edge against the competition.
An example of this theory is Germany. Lots of people know Germany is one of the most competitive economies in the world, what they do not probably know is that only about 40% Germans own a house, the others rent.
Make the public spending worth its value. Stop subsidizing declining industries and focus on competitive and future-proof ones. What is the reason for subsidizing a industry that cannot compete against its foreign peers by itself? Two examples: car making in the US or coal mining in Spain. If a business is not profitable anymore, do not lengthen its agony, it becomes a black hole... Instead, try spending that public money recycling the people and the resources dedicated to it to something different and with a brighter future. Alternative energies come to mind.
Try building new infrastructures. Infrastructures that once done will help you be more efficient and competitive. New high-speed rail networks, better airports, bigger docks, safer roads. Whatever applies to your country.
Drop the ballast. With a recovery this weak, it is not the moment to stop government spending, but it is not the moment to make it grow uncontained either. If you want to spend the money in useful things, then privatizing some inefficient and not-strategic public functions is the way to go. No government is being brave enough to do this. Of course it would be a highly unpopular measure (see the late Greek strikes) but if something has become an unbearable load, it is a matter of responsibility to get rid of it...
I am not optimistic about governments embracing this resolutions for the present year, but they should already know what happens if they do not. The examples of Iceland, Greece, Ireland and the (probably) forthcoming Portugal should be enough.
No comments:
Post a Comment