Friday, January 30, 2009

Governments are going to make it worse

Protectionism is already back, just until this week is was by stealth. ( The US Congress is just about to kick of a trade war with its mindless set of conditions on the US fiscal socialism package ).

Quietly and in ways designed not to trigger the EU's competition laws states have been preventing creative destruction taking place. In the Netherlands the state pays some of certain businesses wages, in the UK there's some odd credit scheme to keep the car manufacturing supply chain functioning. You can be sure that all the other countries with car plants in competition with ours are doing similar deals.

As a result tax payers will fund idle capacity, instead of the worse firms going under and being replaced by firms we want.

The story of the 1970's was of the undead corporations, in this country the nationalised industries. Those who were to big and important to fail, even if they didn't sell anything you wanted to buy. ( False patriotism was used then also with "Buy British" campaigns. )

All these corporations continued to destroy wealth and value up till the point when government could hold the line no longer and the market based reforms of the 80's became necessary.

Lets be clear those reforms saved the UK.

But they were far more painful than they needed to have been. Not because of the heartlessness of Margret Thatcher, but because of the short sightedness and selfishness of those who had governed before.

We risk making the same mistake, but not allowing creative destruction in our financial and manufacturing economy.

The attempts to buck the market made by the government risk instead stopping its function and condemning us to years of stagnation to come.

This is why Ronald Regan was right about government help and Obama is wrong.

Government should of course help people, but what I fear is a form of jobs trade war with each government wanting to keep everything the way it was, funded by budget deficit and debt, and none of them allowing the economy to adjust as it so clearly needs to.

In short, just like the 1970's, government is going to make it worse.

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