[lit-ideas] Re: How to Draw a Crowd
- From: "Simon Ward" <sedward@xxxxxxxxxxxxxx>
- To: <lit-ideas@xxxxxxxxxxxxx>
- Date: Thu, 22 Jan 2009 15:34:46 -0000
"How would you approach the economic mess if you had Obama's ear?"
If I may ...
I think there are two problems. Firstly how to make banks loan money again.
Secondly how to hedge against the risk that they won't. However, there's a
fundamental problem here: interest rates have been reduced down to nothing in
the hope that it'll encourage people and businesses to use credit, and also to
ease the burden of people with mortagages. Unfortunately, low interest rates do
not represent an incentive for the banks to loan money so it doesn't really
matter how much would be borrowed, given the low costs of doing so, if banks
won't release the money anyway.
In short, the standard means of market intervention as dreamed up by the
neoclassical economists (Milton et al) - the adjustment of interest rates to
impact the financial market - no longer applies. What's left is either the
government spending money it doesn't have to initiate investment works that
will boost employment and enable people to spend(Keynesianism), or the bold
step of nationalising signficant portions of the financial market to ensure
that the money starts flowing again (this called something else!).
What Obama should do and what he will do are, I believe, two different things
with the difference defined by the economic lobby he'll be forced to listen to.
He should nationalise, he'll probably spend.
Of course, Fukuyama (and Lawrence) are now having kittens.
Simon
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