De problemen in de eurozone worden steeds groter. De roep om nog meer overheidsingrijpen neemt daardoor ook toe. In de afgelopen weken hebben velen zich geschaard achter het voorstel om euro-obligaties uit te geven. Kort gezegd komt dat erop neer dat niet individuele landen hun budgettekorten op de kapitaalmarkt dekken, maar dat een Europese instantie dat voor hen doet. Op die manier kunnen grote zondaars als Griekenland en Ierland geld lenen zonder daarover een torenhoge rente te betalen.
Het is een merkwaardig voorstel. Het veronderstelt ook dat de burger niet doorziet welke truc hier wordt uitgehaald. Stel u woont in een blokje van 16 koopwoningen, waarop door elke bewoner een hypotheek in wisselende omvang is genomen. Op nummer 10 woont Yannis. Hij houdt van het goede leven. Alles wat er aan geld binnenkomt, gaat er in dezelfde maand weer uit. Op het huis rust een tophypotheek. Op een dag blijkt dat hij zijn financiële situatie wat rooskleuriger heeft voorgesteld dan deze in werkelijkheid was en de bank besluit dan ook de touwtjes aan te trekken. De rente op zijn hypotheekschuld gaat omhoog. Ook de speculaties van beurshandelaar Patrick op nummer 16 blijken minder goed te hebben uitgepakt dan in het verleden. Ook hier wil de bank het hogere risico dat wordt gelopen met de geldlening gecompenseerd zien.
Stel dat vervolgens op de jaarlijkse buurtbarbecue voor het hele blok wordt voorgesteld om alle leningen voortaan te poolen. U woont immers in hetzelfde blok en de waarde van het ene huis is mede afhankelijk van dat van het andere. U moet elkaar in slechte tijden toch ook helpen? Hoe zou u op dit voorstel reageren?
Het is wel duidelijk hoe de bank hierop zal reageren. De te betalen rente wordt een mix van de kredietwaardigheid van alle individuele huishoudens in het blok. Degenen met de laagste kredietwaardigheid zien hun rente dalen; degenen met de hoogste zullen meer moeten gaan betalen. Daarmee is duidelijk dat het een absurd voorstel is. U zult aanvoeren dat Yannis eerst zijn sportwagen maar moet verkopen en ook verder de tering naar de nering moet zetten. Hetzelfde geldt voor Patrick. Toen het goed met hem ging, deelde u ook niet mee in de winst.
Verandert de zaak als blijkt dat de meest kredietwaardige mensen in uw blokje ook de crediteuren zijn van mensen als Patrick en Yannis. Met andere woorden dat het hun spaargeld is dat in de hypotheken zit van laatstgenoemden? Niet echt. Als Patrick en Yannis niet hun schulden kunnen voldoen, vervallen hun bezittingen aan de geldverstrekkers. Zij zullen het blok moeten verlaten. Dat geldt ook voor de eurozone. Zoals de Slowaakse minister van Financiën Miklos onlangs in NRC Handelsblad opmerkte: ‘Als New York failliet gaat, valt de dollar ook niet’. De Slowaken verwijten de Grieken onwil om orde op zaken te stellen, zoals zij zelf noodgedwongen wel hebben gedaan. Slowakije heeft zijn banken geherstructureerd tegen hoge kosten (12 procent van het BBP!), welke zijn opgebracht door de Slowaakse belastingbetaler. Griekenland heeft zijn tekort tot dezelfde hoogte laten oplopen om, vooral consumptieve, uitgaven te financieren. Slowakije is armer dan Griekenland per hoofd van de bevolking en wordt nu gevraagd wel een bijdrage te leveren aan een gunstige betalingsregeling voor dat land.
Een variant die in het kader van het voorstel om euro-obligaties te introduceren wel wordt genoemd in Brusselse kringen, is om wat betreft de staatsschuld een onderscheid te maken tussen een blauw deel en een rood deel. Het blauwe deel is het deel van de totale overheidsschuld onder de grens van 60 procent BBP. Dat is de door het Stabiliteits- en Groeipact ‘toegestane’ schuld en deze zou in aanmerking moeten komen voor financiering met euro obligaties. Het rode deel erboven is voor rekening van het betreffende land, waarover een navenant hogere rente wordt betaald. Een dergelijk onderscheid is nogal kunstmatig. Wie leent er nog geld uit voor het rode deel? De prikkel om over het rode deel geen rente meer te betalen is bijna ingebouwd. Wie niet zijn bestedingspatroon wenst aan te passen, zal zijn verplichtingen op het rode deel verzaken. Waarom iemand dan wel extra geld lenen, zonder nog steeds niet te eisen dat hij zijn leven betert? Extra zekerheden kunnen niet worden geboden, want die zijn nodig om rente en aflossing voor het blauwe deel te garanderen.
Het voorbeeld van het blok maakt ook duidelijk dat steeds verdergaande samenwerking niet nodig is om de welvaart en de betaalbaarheid van schulden te garanderen. Een gezamenlijke munt is een groot goed, maar verder kan ieder zijn eigen broek ophouden. De buurman en buurvrouw op nummer 2 en 4 kunnen besluiten bij elkaar in te trekken of een LAT-relatie aan te gaan. Anderen kunnen besluiten de afscheiding tussen hun tuinen weg te halen en vrij onderling verkeer toe te staan. Meneer Vlaming en mevrouw de Waal op nummer 8 kunnen hun woning splitsen. In tegenstelling tot wat ook Van Rompuy afgelopen vrijdag in NRC beweerde, is alles op een hoop gooien absoluut niet nodig.
Er zijn overigens genoeg andere zaken die de Europese regeringen wel kunnen regelen, maar die ze kennelijk niet interessant genoeg vinden, of erger nog, die tegen hun nationaal belang ingaan. Opvallend daarbij is het dat de zuidelijke Lidstaten degenen zijn die het noorden om solidariteit vragen, terwijl ze op andere terreinen uitsluitend aan zichzelf denken en maling hebben aan de gemeenschappelijk markt die nog steeds niet is gerealiseerd. Een paar voorbeelden:
• De invoering van een Europees patent is recent geflopt, vooral door tegenwerking uit Italië en Spanje. Nog steeds moeten patenten in elke land separaat worden aangevraagd.
• Liberalisering van het dienstenverkeer, zowel tussen Lidstaten als ook daarbinnen. Sinds het protest van met name Zuid-Europese landen tegen de ‘Frankenstein’-richtlijn van eurocommissaris Bolkestein is hier te weinig vooruitgang geboekt. Vooruitgang zou de groei flink aanzwengelen.
• Het onderling verbinden van infrastructuur. Veel treinsporen houden op bij de grens. Dat geldt ook voor elektriciteitsnetwerken. Liever houden landen dure nationale monopolies in stand. De welvaart zou flink kunnen stijgen als markten worden opengegooid.
• Het laatste geldt ook wereldwijd als politici zouden inzetten op het afronden van de ‘Doha’-ronde en een internationaal handelsakkoord zouden sluiten. In plaats daarvan houden ze vast aan het beschermen van verouderde industrieën en sectoren, zoals de landbouw.
• De hervorming van arbeidsmarkten. Veel Zuid-Europese landen kennen overgereguleerde arbeidsmarkten, die bedrijven op kosten jagen en mobiliteit en innovatie nodeloos vertragen.
donderdag 30 december 2010
zondag 12 december 2010
Monetary mismanagement or how the government is prolonging the economic crisis
Many media pretend that the current economic crisis is something falling out of the sky or is inherent to the capitalist system that we have embraced too closely in recent years. It is true that there have always been cyclical movements in market economies. Periods of prosperity alternated with economic downturns, which were necessary for making much needed adjustments. The better this adjustment mechanism can do its work, the sooner the markets tend to go back to equilibrium and the sooner the growth path can be resumed. Business cycles are often the result of (mistimed) government interventions. And that certainly applies to prolonging periods of negative or low growth, as is the case now.
In recent decades, we have seen the intellectual bankruptcy of Marxism and the idea that society can be steered by the government. Unfortunately, that last thought is not yet buried and many policy makers are indulging the idea instinctively. Despite the bad experiences with public assistance in the past, many policy makers have repeated the mistakes of the past during this crisis. Firstly, government spending has increased massively. This has contributed to creating large deficits. In addition, we have hardly benefited from this additional expenditure, which is used largely for consumption or for keeping failing banks afloat. Now we see for some time that especially the Fed, and the ECB to a lesser extent, is trying to steer the economy through (substantial) changes in monetary policy. All these policy interventions are doomed to failure. In fact, the chances are that it only makes things worse.
In the vast majority of markets, government intervention is outdated and is not tolerated. The money market is one of the last markets where government intervention is still the case and is even asked for. This is often with a reverence to the trust function money has in society. Something as important as money can not be left to the responsibility of private parties. Proponents of government intervention make clever use of monetarist principles, which go back to the intellectual ideas of Milton Friedman. It is generally recognized that expanding the money supply in time will lead to more inflation. Monetarists, however, indicate that in the short term, many prices are fixed and monetary policy has, sometimes powerful, real effects. Most monetarists, however, recommend not using monetary policy to influence the business cycle, since it is impossible for the government to determine the necessary dose at the right time. It is here that the opinions expressed by the Fed and the ECB differ from mainstream monetarists. Central bankers see themselves under pressure from politicians faced with the task of returning the economy back to growth. They know that monetary policy is a very powerful instrument. Given the present state of public finances, it is currently the only instrument available.
How bad is the memories of policymakers. Too loose monetary policy is one of the causes of this crisis. The abundant availability of money has contributed to the fact that many investments were made which had no economic value and could be best described as speculation. The money has found its way into equities and real estate markets, where, based on misplaced expectations, huge bubbles were created. Investors were collecting large bonuses, telling everyone how smart they were. When this house of cards collapsed, the bill was taken to the tax payer.
Now through monetary expansion (quantitative easing) authorities try to reanimate the collapsed economy. Most spectacular example of this is the announcement by the Fed of a monetary extension of 600 billion U.S. dollars (which in value terms amounts to the size of the Dutch economy). This ignores that money must be earned in the real economy, the production of goods and services (including financial services). The laws of supply and demand also apply here. In other words, the price of money should be determined by supply and demand. In the present conditions this seems almost a revolutionary insight, but it has been promoted decades ago by the Austrian school of economic thought and by Murray Rothbard especially (see www.rothbard.be).
In our societies it is the government that has monopolized the issue of money. Like any monopoly, this sooner or later leads to abuse and that's also the case here. The abuse by the government is reflected in the occurrence of inflation. The oversupply of money relative to what the economy needs based on the production of goods and services, leads to price increases. In the short run not everyone is able to adjust prices, which causes that some benefit from a monetary easing and others are hurt. Those who can not adjust, e.g. because of long-term contractual obligations, pay the price. When imbalances become too large, they must be disposed of, e.g. through additional savings to compensate for capital losses. This leads to a period of low growth. The greater the mess, the longer the period of low growth will be.
This adjustment process is currently being delayed by government intervention. The desire to steer the economy not only results in the wish to manipulate monetary policy to get out of the crisis. Certain countries have themselves and others fooled by manipulating their financial situation and masking underlying weaknesses. In good times they have not adjusted their economies so that bubbles could arise and rigidities (e.g. in the labour market) remained. The bursting of these bubbles, inadequate supervision and existing rigidities prevent the much needed changes to occur. Or these are achieved too slowly. Within the euro area, by choosing the soft approach many failing countries are allowed an appeal to an economic safety net. Necessary adjustment processes are delayed and more countries have become increasingly dependent on help. There is thus a vicious circle in which the countries that have their affairs in order, are again and again called to help out their weak brethren. Once they have provided help, there's no turning back. Their economies are increasingly intertwined, so that citizens in countries that do have adapted have to share the burden with those in countries who refused to do so. Also, supranational bodies such as the European Commission and the ECB will put themselves forward as saviours. Referring to the need for ‘coordination’, these organisations will stress the need to centralize tasks and responsibilities. For those who need to be rescued, this provides additional opportunities to forestall necessary adjustments and to shift burdens to others.
What lessons can we draw from the above? At least three:
1. A clear lesson from this crisis should be that there is a need for a central bank with only one clear objective and that is price stability. From the Keynesian economist Jan Tinbergen, we already know that one instrument can only serve one goal. Cyclical stabilization should therefore not be the responsibility of a central bank and therefore of monetary policy.
2. A currency area must not have a safety net mechanism. Coordination of policies and rescuing mechanisms are not needed if every country pursues sound economic and financial policies, for example by complying with the EMU criteria. The call for more coordination masks an unwillingness to implement structural reforms and to bring its own house in order. Anyone who strives for balance in public finances and the current account balance (e.g. through a responsible wage policy) does not have to come along in a process of increasing policy coordination. The mere existence of a safety net will increase the problem of moral hazard within a monetary union, as policy makers get more careless and give priority to national economic goals.
3. The burden of adjustment must rest on the countries where imbalances have grown out of control, preferably in economic upturns. If that fails, they will have to leave the common currency area. This principle also applies on a global scale. Germany and China do not have to adjust their economies, so the U.S. can come along. They should do what is best for their countries in the long term, by spurring high growth. Chelsea and Manchester United will also not sell for a bargain price their best players to help underperforming clubs to compete nor will they occasionally shoot in their own goal for the league to remain interesting. China is a somewhat special case here. It does not have a freely convertible currency. It should have, but can not convert to a freely floating currency at this moment. China has invested its reserves in dollars and in the light of current circumstances, this is a very unwise choice. Printing US dollars on a large scale, as is happening now, will deteriorate its value and thereby the huge investments in dollars as well. Hence the Chinese resistance against an overly strong revaluation of its currency. The idea of returning to a kind of gold standard, as expressed recently by Robert Zoellick of the World Bank, is therefore not that bad, although it seems practically impossible to realise now. A classical gold standard will make that adjustments occur more or less automatically and not after imbalances are too far out of control and adjustments are associated with a loss of face. There is more need for such a mechanism than for more coordination on a global or EU level.
In recent decades, we have seen the intellectual bankruptcy of Marxism and the idea that society can be steered by the government. Unfortunately, that last thought is not yet buried and many policy makers are indulging the idea instinctively. Despite the bad experiences with public assistance in the past, many policy makers have repeated the mistakes of the past during this crisis. Firstly, government spending has increased massively. This has contributed to creating large deficits. In addition, we have hardly benefited from this additional expenditure, which is used largely for consumption or for keeping failing banks afloat. Now we see for some time that especially the Fed, and the ECB to a lesser extent, is trying to steer the economy through (substantial) changes in monetary policy. All these policy interventions are doomed to failure. In fact, the chances are that it only makes things worse.
In the vast majority of markets, government intervention is outdated and is not tolerated. The money market is one of the last markets where government intervention is still the case and is even asked for. This is often with a reverence to the trust function money has in society. Something as important as money can not be left to the responsibility of private parties. Proponents of government intervention make clever use of monetarist principles, which go back to the intellectual ideas of Milton Friedman. It is generally recognized that expanding the money supply in time will lead to more inflation. Monetarists, however, indicate that in the short term, many prices are fixed and monetary policy has, sometimes powerful, real effects. Most monetarists, however, recommend not using monetary policy to influence the business cycle, since it is impossible for the government to determine the necessary dose at the right time. It is here that the opinions expressed by the Fed and the ECB differ from mainstream monetarists. Central bankers see themselves under pressure from politicians faced with the task of returning the economy back to growth. They know that monetary policy is a very powerful instrument. Given the present state of public finances, it is currently the only instrument available.
How bad is the memories of policymakers. Too loose monetary policy is one of the causes of this crisis. The abundant availability of money has contributed to the fact that many investments were made which had no economic value and could be best described as speculation. The money has found its way into equities and real estate markets, where, based on misplaced expectations, huge bubbles were created. Investors were collecting large bonuses, telling everyone how smart they were. When this house of cards collapsed, the bill was taken to the tax payer.
Now through monetary expansion (quantitative easing) authorities try to reanimate the collapsed economy. Most spectacular example of this is the announcement by the Fed of a monetary extension of 600 billion U.S. dollars (which in value terms amounts to the size of the Dutch economy). This ignores that money must be earned in the real economy, the production of goods and services (including financial services). The laws of supply and demand also apply here. In other words, the price of money should be determined by supply and demand. In the present conditions this seems almost a revolutionary insight, but it has been promoted decades ago by the Austrian school of economic thought and by Murray Rothbard especially (see www.rothbard.be).
In our societies it is the government that has monopolized the issue of money. Like any monopoly, this sooner or later leads to abuse and that's also the case here. The abuse by the government is reflected in the occurrence of inflation. The oversupply of money relative to what the economy needs based on the production of goods and services, leads to price increases. In the short run not everyone is able to adjust prices, which causes that some benefit from a monetary easing and others are hurt. Those who can not adjust, e.g. because of long-term contractual obligations, pay the price. When imbalances become too large, they must be disposed of, e.g. through additional savings to compensate for capital losses. This leads to a period of low growth. The greater the mess, the longer the period of low growth will be.
This adjustment process is currently being delayed by government intervention. The desire to steer the economy not only results in the wish to manipulate monetary policy to get out of the crisis. Certain countries have themselves and others fooled by manipulating their financial situation and masking underlying weaknesses. In good times they have not adjusted their economies so that bubbles could arise and rigidities (e.g. in the labour market) remained. The bursting of these bubbles, inadequate supervision and existing rigidities prevent the much needed changes to occur. Or these are achieved too slowly. Within the euro area, by choosing the soft approach many failing countries are allowed an appeal to an economic safety net. Necessary adjustment processes are delayed and more countries have become increasingly dependent on help. There is thus a vicious circle in which the countries that have their affairs in order, are again and again called to help out their weak brethren. Once they have provided help, there's no turning back. Their economies are increasingly intertwined, so that citizens in countries that do have adapted have to share the burden with those in countries who refused to do so. Also, supranational bodies such as the European Commission and the ECB will put themselves forward as saviours. Referring to the need for ‘coordination’, these organisations will stress the need to centralize tasks and responsibilities. For those who need to be rescued, this provides additional opportunities to forestall necessary adjustments and to shift burdens to others.
What lessons can we draw from the above? At least three:
1. A clear lesson from this crisis should be that there is a need for a central bank with only one clear objective and that is price stability. From the Keynesian economist Jan Tinbergen, we already know that one instrument can only serve one goal. Cyclical stabilization should therefore not be the responsibility of a central bank and therefore of monetary policy.
2. A currency area must not have a safety net mechanism. Coordination of policies and rescuing mechanisms are not needed if every country pursues sound economic and financial policies, for example by complying with the EMU criteria. The call for more coordination masks an unwillingness to implement structural reforms and to bring its own house in order. Anyone who strives for balance in public finances and the current account balance (e.g. through a responsible wage policy) does not have to come along in a process of increasing policy coordination. The mere existence of a safety net will increase the problem of moral hazard within a monetary union, as policy makers get more careless and give priority to national economic goals.
3. The burden of adjustment must rest on the countries where imbalances have grown out of control, preferably in economic upturns. If that fails, they will have to leave the common currency area. This principle also applies on a global scale. Germany and China do not have to adjust their economies, so the U.S. can come along. They should do what is best for their countries in the long term, by spurring high growth. Chelsea and Manchester United will also not sell for a bargain price their best players to help underperforming clubs to compete nor will they occasionally shoot in their own goal for the league to remain interesting. China is a somewhat special case here. It does not have a freely convertible currency. It should have, but can not convert to a freely floating currency at this moment. China has invested its reserves in dollars and in the light of current circumstances, this is a very unwise choice. Printing US dollars on a large scale, as is happening now, will deteriorate its value and thereby the huge investments in dollars as well. Hence the Chinese resistance against an overly strong revaluation of its currency. The idea of returning to a kind of gold standard, as expressed recently by Robert Zoellick of the World Bank, is therefore not that bad, although it seems practically impossible to realise now. A classical gold standard will make that adjustments occur more or less automatically and not after imbalances are too far out of control and adjustments are associated with a loss of face. There is more need for such a mechanism than for more coordination on a global or EU level.
Abonneren op:
Posts (Atom)