At the G-20 Summit, world leaders seem to have agreed that
money needs to be pumped into the global economy through both monetary and
fiscal policies – basically interest rate cuts and tax cuts together.
So far, so good. Although the long-term consequences of
these measures is unhealthy, there is no denying that the current crisis
demands an adrenaline shot of cold, hard cash into the sickly patient to stop
it going into cardiac arrest.
Yet the politicians are still fairly clueless.
Desperate to be seen be doing something – anything – they
are paying more attention than they ought to some suggestions that could actually
make the situation worse.
1 Protectionism: this
is the worst idea of all. The consequences of the 1929 Crash were prolonged by
the best part of a decade by the tariff walls that went up as a panic response.
2 Bailing Out the Big Three: if the USA
bails out its moribund automobile giants, why not bail out other failing
businesses? To do so simply rewards bad management at the expense of properly managed
3 Full Nationalisation of the Banks: state-owned
banks will find it increasingly difficult to reconcile the political pressure
to lend freely and to minimise foreclosing with the commercial imperative to
reduce marginal lending and to be aggressive in pursuit of bad debt.
4 Massive Public Works Programmes: politicians
love them because they are highly visible, but public investment in projects
that are not otherwise viable means higher deficits and taxes, and therefore
less to invest in private businesses that might be viable.
5 Soft Loans to Small Business: this
suggestion is a would-be populist response to public outrage at the big banks
being bailed out. However, it is a classic case of two wrongs not making a
right. As with all state funded schemes, the reality is that money would go to
those with friends in government, or those who are best at filling out forms,
not to the most viable or the most deserving.