Share Reform has always been a battle between politicians and economists. Both sides striving for progression and the greater good of society. However, too many times they have failed to reach a common ground, causing economic crises and in some cases an entire collapse. Politicians are plagued with good intentions and the worry of doing all they can to get re-elected. It's this mentality that causes the public to become dependent on government, and politicians to splurge without rational thinking to protect an image. However, the field of economics is based on assumptions and sometimes doesn't take into account the social affects of complex models. There needs to be a balance which calls for cooperation between politicians and economists.
The dependency factor causes many to believe that government will always be around to do what it does best - provide for the people. However, a system is bound to become exhausted; and this calls for political cooperation. This is evident in the Euro zone, as member countries (especially the PIIGS) scramble to cut back on spending in the middle of a sovereign debt crisis. Greece was one country that lived beyond its means, and when the time came to cut back, politicians were the ones to blame. Protestors flocked to the streets causing riots near government buildings in blatant hatred towards politicians. The economists who warned about soaring deficits and unsustainable debt were asked to help the IMF assess the financial sustainability of European countries.
The relationship between Central Banks and politicians is also important. In Argentina, President Cristina Kirchner decided to use some of the central bank reserves to fund deficits and continue spending. After the Central Bank Governor disagreed, he was ousted.
In China, its government is so hands on, that its actions are great enough to manipulate economic growth. When the yuan was pegged to the dollar, China bought US dollars to keep their currency stable, but also had a greater say in US economic policies. China's expanding interest in accumulating natural resources from developing countries is strengthening their diplomacy while balancing trade and increasing domestic productivity and output. When China vowed to gradually brake the dollar/yuan peg and allow the markets to set the value of their currency, some saw this as a loose policy of the Chinese Central Bank. However, the comfortable relationship with the Central Bank and politics worked to keep the yuan stable. Recently we've seen Chinese state owned banks buy up US dollars, and even the Agricultural Bank of China went public. Technically, it's not the Chinese Central Bank, but the expansion of their state banks to act as a derivative to stabilize the yuan despite the peg break is one impressive strategy. When the central bank bought record amounts of Japanese Yen, the world began to realize how important China's reserve holdings are. China will soon reach a point where its government will have great political impact on the world through its economic operations while others are busy trying to come back.
Chinese politics and economics is one mutual relationship that's tricky. The outcome is questionable, but it is clear that politics gets in the way of a lot of economic policy (for good or bad). However, in the United States, this problem is stalling a recovery. Monetary policy is exhausted, and the markets seem to be ready for a US reversal, but politicians have yet to fix employment, cut back on spending, and raise revenue. Several states such as California remain in a fiscal trap. New York desperately needs to balance their budget, but politicians have stalled the process. Republicans vote no for any taxes and spending cuts that will affect their constituents, while Democrats want to keep spending programs active to keep everyone happy. No one is willing to sacrifice for responsible governing. As deficits grow, new entitlements arrived as promised. A national health care plan came at the wrong time instead of adjusting the current programs that cater to the ageing population that will surely be a long term problem for all governments in the rich world.
Most politicians just don't get it. We need people who know how to work a budget with proper economic sense. Unfortunately government spending is not investment, and during slow economic times, investing is the better option to decrease dependency but ensure productivity.
All eyes are on the emerging markets, but politics poses a threat in those countries too. Africa is plagued by corruption, and Latin America sits on vast natural resources and has great potential, but its leaders are busy being dictators who stump innovation.
Stepping back and just analyzing global politics gives us great insight into where our investments are headed. Perhaps because of all of this turmoil, Keynes is right - "in the long road, we're all dead."
No comments:
Post a Comment