Economic Confusion

Being an expat in SA I’ve been following the economic goings on in Europe and the US with some interest.  I just don’t understand the rationale behind the current squeeze.  The purpose of the squeeze apparently is to put the economy back to rights and thereafter expand it. A sort of fiscal detox and purgative along the medical lines of it’s hurting so it must be doing you good.

I’ll be grateful if someone could please explain slowly and carefully in words of one syllable or less how putting people out of work so that they have less to spend expands an economy?

Take the Great Depression in the late 1920s.  Hoover’s austerity programme in the US worsened the situation, as did a similar programme by the Weimar Republic in Germany.   The world economy only picked up with the advent of Hitler and Roosevelt applying massive Public Works Programmes and putting people back to work. We all know where Hitler’s programme led, but Roosevelt’s was ticking along nicely until Pearl Harbour gave it a change in focus and a quantum increase in resource requirements.

So, explain to me why savage deflation and contraction of economies, reductions in public and personal expenditure are going to start up economies again.  If tax income is decreasing and isn’t there to spend while companies close because of empty order books, where is this stimulus going to come from?  Looks like a vicious downward spiral to me.

There also some sort of collective insanity going on in everyone believing that austerity is the answer to all the ills. It’s particularly odd that the UK is applying serious austerity measures as a result of fiscal pressures in the Eurozone. The UK is not in the Eurozone.

The story from the financial community is that if you get your house in order, then investors will return and all will be rosy in the garden again. That’s fine advice from the guys that caused the problem in the first place. It’s not much comfort when the thought is of you and your family existing on the nuts and root vegetables you scavenge while out looking for work.

I am amazed the European population has not yet descended on the houses of the great and the good dragging guillotines and tumbrils behind them.   I suppose when dog mince becomes too expensive they just might.

Meanwhile the banks carry on as if nothing had happened.  No contrition, no apologies, just another hand outstretched for another bout of “Quantative Fiscal Easing”.  That’s banker speak for “Dear Government, give us another bucketful of the poor people’s money and don’t expect or ask for it back”.

If we are looking for a stimulus,  fiscal or otherwise, why not have a re-run of the Olympics, tailoring a few events especially for the financial services community.  Ones that spring to mind include catching the javelin, heading the shot-put, and clay banker shooting.  I’m sure you have a few ideas. At least we’d have a laugh.  The alternative is too awful to contemplate.

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