Tag: business cycle

Libertarians typically have no reason to protest the typical annual meeting of Group 20 (G20). G20 is of course the grouping of the richest and most influential countries in the world. This year’s meet up in London however is not a typical gathering. It is extraordinary because of the global economic turbulence we are witnessing at this very moment. In trying to address the problem, both the Obama and the Brown administrations are advocating large spending and they will likely call for others to do the same at the G20. This call — probably made for the first time in recent memory — gives libertarians a reason to join the protest against the G20, particularly, against the US and the UK.

Both administrations have been building the spending momentum for weeks, if not months now. Indeed, both countries are leading the way in economic stimulus with government spending as a major pillar. Much has been spent but both English-speaking countries — especially the Obama administration — content that too many are not spending enough. The idea is that the problem is not spending too much. Rather, it is about doing too little.^[1]

In Malaysia, the Finance Minister Najib Abdul Razak has unfortunately embraced that idea. With as much as RM67 billion worth of stimulus plan with another RM5 billion injected into the equity market with much opacity by the Malaysian government, the credential of the expected next administration of Malaysia — the expected Najib administration — as a big spender is not in question. This is by no mean that Malaysia is following the footstep of the US and UK. Indeed, the current administrator of Malaysia is gloating by the fact that they did it first during the Asian Financial Crisis when the US was dead against it. The Malaysia’s administration takes the current trend as a justification of their past action.

Momentum or not, both Obama and Brown administrations’ effort to lobby for more spending from other countries is meeting resistance, especially from Europe and Latin America. For regions not known for their love for free market, this is certainly refreshing when the traditional advocates of free market are taking steps in the wrong direction.

Germany called United Kingdom Prime Minister Brown’s method as crass Keynesianism.^[2] Although eventually capitulating by increasing its spending but still short from what the Brown and the Obama administration had hoped for, Germany was unhappy at what they saw as them bailing out imprudent others. Germany had worked hard to keep its accounts in order and it despised the idea of spending their money to correct others’ mistakes, while undoing Germany’s successes.^[3]

Czech Premier who also holds the presidency of the European Union went as far as calling Obama’s call for greater spending as the road to hell. He has been reproached by other European leaders for the harsh words but nevertheless, it exhibits the sentiment of the member states of the European Union.^[4]

In Latin America where Brown and later the Vice President of the United States Joe Biden flew down earlier, both faced similar but more politely put opposition. The hero of the moment was Chile, as President Michelle Bachelet, an economic left, practically rehashed argument forwarded by the Conservative Party led by David Cameron in the United Kingdom to Brown.^[5]

Judging from the results of these meetings, both Obama and Brown are likely to meet heavy resistance at the table of G20 when it comes to how to address the global economic crisis.

In all likelihood, the reversal of roles probably has little to do with philosophical difference and much to do with the fact that the economic crisis has unequal effect across the world. In Europe unlike the United States, far more comprehensive social safety nets are in place. The automatic pervasive mechanism as advocated by economist John Taylor is already in place.

Germany meanwhile had saved enough in good times that they believed that the country was able to ride on the wave safely. The same argument is applied by Chile when Bachelet effectively said no to Brown’s call for support for greater spending, which he is expected to repeat at the table of G20.

For Asian countries especially for the export-driven economies, while the pain is undeniable, it is unlikely to go as bad as in the US. And indeed, the different nature of economic crisis in Asia demands different solutions. What the US and the UK are asking is but only a one-size fit-all policy.

Also, there is a sense of the often used German word which has found its way to mainstream English language: schadenfreude. Schadenfreude means pleasure derived from watching others’ misfortune. The latest prominent leader seemingly to enjoy the scenario is the Brazilian President when Luiz Inácio Lula da Silva. He reminded all that this crisis was caused by “white people with blue eyes.”^[6] This schadenfreude however has become excessive lately and risks of becoming masochism.

For libertarians, the opposition mounted against the US and the UK is something to be supported of, even when the causes of opposition differ. As it goes, there are no permanent allies and no permanent enemies. There are only permanent interests.

^[1] — In this crisis, doing too little poses a greater threat than doing too much. Any sound economic strategy in the current context must be directed at both creating the jobs that Americans need and doing the work that our economy requires. Any plan geared toward only one of these objectives would be dangerously deficient. Failure to create enough jobs in the short term would put the prospect of recovery at risk. Failure to start undertaking necessary long-term investments would endanger the foundation of our recovery and, ultimately, our children’s prosperity. [Obama’s Down Payment: A Stimulus Must Aim for Long-Term Results. Lawrence Summers. Washington Post. December 8 2008]

^[2] — Mr Steinbruck questioned why Britain was “tossing around billions” and closely following the high public spending model put forward by 20th Century economist John Maynard Keynes.

“The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking,” he said. [Germany questions UK rescue plan. BBC News. December 11 2008]

^[3] — German Chancellor Angela Merkel said in a speech to Germany’s parliament on Thursday that her government was doing more than most to support the world economy through higher spending and lower taxes. Germany’s stance could come under pressure from financially weaker countries within Europe as their economies sink deeper into trouble, economists say.

Struggling EU countries range from Ireland and Spain, where housing-market bubbles have burst, to Hungary and Latvia in the continent’s post-communist East, where capital flight has forced governments to seek IMF aid.

Although Germany is in its worst recession in 60 years, Europe’s biggest economy has relatively strong public finances and enjoys the trust of capital markets.

That means Germany could be doing more to raise its domestic demand through higher government borrowing, say critics. Germany’s reluctance to do so means its neighbors’ recessions will be worse than necessary, says Julian Callow, European economist at Barclays Capital. [EU Rebuffs Calls to Increase Fiscal Stimulus, Aid. Marcus Walker. Adam Cohen. Wall Street Journal. March 20 2009]

^[4] — BERLIN, March 25 — The president of the European Union on Wednesday ripped the Obama administration’s economic policies, calling its deficit spending and bank bailouts “a road to hell.”

The comments by Prime Minister Mirek Topolanek of the Czech Republic, which holds the E.U.’s rotating presidency, startled some U.S. and European officials, who are preparing for President Obama’s visit next month to several European cities, including Prague, the Czech capital. [E.U. President Blasts U.S. Spending. Craig Whitlock. Washington Post. March 26 2009]

^[5] — Gordon Brown suffered another setback over his diplomatic offensive yesterday, as the Chilean president inadvertently echoed Conservative attacks on the prime minister’s handling of the economy. [E.U. President Blasts U.S. Spending. Craig Whitlock. Financial Times. March 26 2009]

^[6] — Mr Brown’s decision to use the South American leg of his trip to call for a G20 $100bn (£70bn) deal to support world trade was overshadowed when Luiz Inácio Lula da Silva, the Brazilian president, blamed the financial crisis on “white people with blue eyes”. [E.U. President Blasts U.S. Spending. Craig Whitlock. Financial Times. March 26 2009]