Markets keep rising but so does unemployment. Governments print money although the vast majority of it leaches into speculative capital market trading rather than worthwhile economic activity. Record low interest rates will both provoke and sustain economic recovery yet inflation will not be the result. The inconsistencies just keep on coming.
At the Labour Party conference, Lord Mandelson announced an extension to the car scrappage scheme. New registrations climbed 12% in September compared to the same month in 2008. All of which was hailed by the government, the CBI and the Society of Motor Manufacturers and Traders as proving the scheme was ‘working’. Mmmm ……. all it proves to us is the validity of Williams’ Law; a profound addition to the dismal science of economics which states that demand for anything will rise if another party is picking up the tab.
And, playing devil’s advocate, why should car buyers be the beneficiaries of such largesse while purchasers of, say, refrigerators, golf clubs or carpets are not? From a purely selfish standpoint, I would appreciate government assistance on the purchase of holidays, surf boards and football boots. A bit of ‘scrappage’ at Waitrose wouldn’t go amiss either.
However, if prosperity were the result of government spending and printing money, Zimbabwe would be a paradise while Switzerland would be an impoverished basket case. If only the Swiss had paid more attention, they’d have avoided decades of economic mis-management resulting in the chaos of balanced budgets, high employment, low taxation and virtually zero inflation.
More hot air comes from those who believe Sterling’s collapse is good news because it stimulates exports. While that is true, it will also make imports more expensive which is a problem in itself but especially as the UK runs a substantial trade deficit. How many strong economies have a weak currency? Prior to the introduction of the Euro, having perennially weak currencies didn’t turn the likes of Spain, Portugal or Greece into exporting powerhouses. Conversely, the world happily bought Germany’s cars, electronics and industrial machinery despite the strength of the mighty Deutschemark. All of which illustrates that it’s not about price; it’s about quality.
We weren’t expecting much from the recent G20 summit in Pittsburgh and it didn’t disappoint. “We will avoid any premature withdrawal of the stimulus” said the conference communiqué. Barack Obama declared “We’ve brought the global economy back from the brink.” The tragedy is he believes it. The western world has forgotten that wealth creation is based upon hard work and thrift, not mind boggling levels of government expenditure and printing funny money.
The G20 is but the latest version of the club that represents the leading industrial nations. It started out as the G6, became the G7 and then the G8. It’s now the G20 although there has been the G22 and G33 in between. Whatever next? We wouldn’t discount a future G-string summit. No doubt Mr Burlusconi would happily host it.
John Newsome can be contacted on: 01423 705123 or email:firstname.lastname@example.org