Opinionista Mark Barnes 6 November 2019

What policy works?

‘Just a spoon full of sugar …’ isn’t going to be enough this time. It’s ‘make it easier’ season all over the world, again, it seems.

The US Federal Reserve had just made its third successive 25 basis point cut in interest rates — despite near full employment and booming stock-markets, I guess the reality needs help? Or is this just a buffer for the danger of a no US-China trade deal devastation?

China has just cut its medium-term interest rate for the first time in three years, with its growth rate at the lowest (6%, shame) in 30 years. It’s worse than that — Chinese manufacturers are no longer investing capital in growing their businesses, preferring instead to put cash into financial investment products — an alarming development, for sure.

Throughout the Eurozone (with the exception of Romania, for now) negative interest rates have become the norm. They’re happy to pay governments (there, not here) to look after their money. That’s how scared the world is about the future. That’s how little else people can find to do with their money. Even stuffing it under the proverbial mattress is no longer safe enough.

Australia is implementing tax cuts. Practically all governments, everywhere (as ever with notable exceptions) are using whatever policy tools may be at their disposal to make things easier.

Making things easier and inspiring confidence are not the same thing. In fact, they may turn out to be opposites. Confidence comes from climbing stairs, not using elevators.

Not everyone is happy with all of this. “Well behaved “ economies, like Germany and Japan, which have generated surpluses, are being criticised for not investing more. Christine Lagarde, incoming President of the ECB, recently chastised Germany and the Netherlands for not doing more to help out — ridiculous. Three Germans resigned from the ECB Board.

We seem to be scratching around for solutions, using the same old medicine, which hasn’t worked. The cupboards are running bare of the quantitative easing muti — how much further negative can interest rates go before it just gets silly. It’s not economics anymore, its psychology. It’s hardly an indication that you’re getting better when, every time you return to the doctor for a check-up, he prescribes more of the same medicine.

The people, the earners and builders of wealth, aren’t convinced. People don’t like to be pushed. People prefer to follow big investors, rather than lead them. What do we know?

It doesn’t help that we keep helping. I’ve seen too much of this helicopter and snow-plough parenting among the circles of the relatively well off. Clearing all obstacles in front of them and extra lessons for everything aren’t going to make our children stronger, let alone equip them to cope with the challenges they face. Swim against the current a bit, face into the wind a bit, make some mistakes, fall down, stand up again, get a life.

Elizabeth Warren, arguably the leading Democratic contender for the US Presidency in 2020, and clearly a very smart person, has a very different, very “non-American dream” take on all of this.

In what I see as nothing less than an invasion of the free market, Warren wants to re-write the rules. Let government-issued licences for defined behaviour replace the shareholder vote. Really? Re-think limited liability — a founding pillar of risk-taking — that’ll teach them, that’ll put those private equity risk-takers in their place, she feels. Introduce all kinds of wealth taxes and levies. Replace public health insurance with a state-controlled system… quite a lot of non-capitalist, non-free market stuff.

Her mission? To address the manifest economic inequality that the free markets have foisted upon us, with something more “fair”. Her quest is virtuous, there’s no doubt about that. Whether her elements of solution design will do it, or even see the light of day, we’ll see. I doubt it, and I don’t think hers is the right muti either. Let the markets go crazy, and crash, and burn — they can manage that all by themselves. Whether they’ll learn from it is another matter entirely.

The real issue, though, is who’s at the wheel, who plots the course. Which force should we abide — the popular vote (which elects governments), or the invisible hand (which creates disparate wealth).

It’s some mix, I guess. I really don’t know anymore. We’re starting to border on much-higher-level debates. What is the meaning of life? For me? For us? For everyone?

Is there any definition of fair other than equal at the end (equal at the beginning is not up for debate)? That we are confused is the only certainty.

We’re in trouble. The thin ice that is the veneer of those unstoppable markets and climbing asset prices will surely melt — into a shallow pond that exposes all boats.

Live a little, there’s trouble ahead. BM

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