It's not much of a choice. If we are to believe what we read in the newspapers we have Brown and Obama in one corner wanting to sink the world further into stimulus-funding debt. In another corner we have Merkel and Sarkozy wanting to use the London Summit to usher in "a new era of global regulation of banks, executive bonuses, hedge funds and offshore tax havens." No doubt some sort of compromise will be reached and we'll get both more debt and more regulation.
The economic crisis engulfing the world is obviously serious but I'm beginning to fear that the cures favoured by our 'leaders' will do greater long-term harm to our economies.
We are seeing five damaging reactions:
- A big increase in government debt - much of it poorly targeted - and which will burden our economies for years to come;
- Significant extensions of government activity - particularly in America;
- Calls for greater and greater regulation although the crisis is fundamentally a crisis of excessively lax monetary policy and bad regulation (rather than inadequate regulation);
- Protectionism;
- A loss of confidence from conservative parties in the free market.
I'll mention 4 and 5 briefly today:
Protectionism
London's new Legatum Institute will today be hosting the launch of the Freedom To Trade Petition. I've just signed it. So, much more importantly (!), have two thousand economists and recognised experts.
The campaign is needed. A press release from Legatum notes the protectionist tendencies we are seeing across the globe:
- The USA passed a stimulus bill in February that includes a “Buy American” clause providing a competitive advantage to iron, steel, and manufactured goods made in the USA.
- China has banned imported food products from Europe, such as Dutch eggs, Belgian chocolates, Italian brandy, and Spanish dairy products.
- The EU has announced new export subsidies on butter, cheese, and milk powder.
- India has banned Chinese toys.
- Russia has raised tariffs on used cars.
- In addition to the US government’s trade-distorting subsidy to its largest auto manufacturers, Canada, France, Germany, United Kingdom, China, Argentina, Brazil, Sweden, and Italy also provided subsidies to auto makers.
We'll do doubt get fine sounding pledges on free trade from the G20 summit-eers but their actions point in the other direction.
Loss of conservative confidence in the market
As Daniel Finkelstein writes in today's Times: "We have rarely done anything as benign as going shopping, rarely devised anything as socially advantageous as property rights and the rule of law, rarely enriched the poor or enhanced lives as we did by creating capitalism." Absolutely Mr F. But, across the world, conservative politicians are almost silent in defending capitalism. Yes, we have the excellent Deborah Thomas but the Left and big statists will score a massive ideological victory - with consequences for years to come - if senior conservative politicians don't repeatedly and passionately provide a proper account of the origins of this crisis and why free enterprise is our best hope of future mass prosperity.
