What Happens When You Make An Economy More Statist?

Tuesday, December 23rd at 1:40AM EST

7 Comments

What’s good for General Motors may not ultimately be best for the global economy.
The Bush administration’s $13.4 billion rescue of GM and Chrysler is a fitting finish to a year in which governments around the world expanded their role in the economy and markets after three decades of retreat.
The intervention comes at what may prove to be a steep price. Future investment may be allocated less efficiently as risk-averse politicians make business decisions. Whenever banks decide to lend again, they are likely to find new capital requirements that will curb how freely they can do it. Interest rates may be pushed up by government borrowing to finance trillions of dollars of bailouts.
“We’re seeing a more statist world economy,” says Ken Rogoff, former chief economist at the International Monetary Fund and now a professor at Harvard University in Cambridge, Massachusetts. “That’s not good for growth in the longer run.”
It’s not good for stocks either, says Paola Sapienza, associate professor of finance at Northwestern University’s Kellogg School of Management. Slower economic growth means lower profits. Shares might also be hurt by investor uncertainty about the scope and timing of government intervention in the corporate sector.
“If the rules of the game are changing, people are reluctant to invest in the stock market,” Sapienza says.

As they say in the biz, click on the link to read more. Amazingly enough, we have economists quoted in the story stating that as uncomfortable as they are with the government being involved in the economy to the degree that it is, they would be even more uncomfortable if the government was not involved.

That latter sentiment may change quickly once the degree to which statism is undermining long-term economic growth becomes clearer.

7 Comments Leave a comment

I always...

Warner Todd Huston (Diary) Tuesday, December 23rd at 2:28AM EST (link)

I always find it amusing when people say “economists” as if there is just one type of “economist,” as if an “economist” employs strict, unassailable science.

Remember, Karl Marx was thought of as an economist of sorts! And he was not much on real science!

———-
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It's usually not a public policy question

DRP Tuesday, December 23rd at 12:18PM EST (link)

But the media does that with any kind of scientist. About the only type professional who ever gets more than one opinion per article are lawyers.

Well...

bobbymcgill Tuesday, December 23rd at 6:24AM EST (link)

Did she really say “it’s not good for stocks either??” And the lack of government oversight has been good thus far? I am not for government pulling the levers, but definitely for them pulling the guys who pull the levers out from time to time and giving them a good thrashing when needed.

Bobby
http://www.idleworship.com

Government involvement is at least as much to blame

Crowe (Diary) Tuesday, December 23rd at 1:43PM EST (link)

The current meltdown was cause at least as much by government-run companies (Fannie and Freddie), and politicians pressuring private companies into giving bad loans, as it was by heads of private companies making bad decisions on their own, free of government meddling/coercion…

A lack of government “oversight” (i.e., telling private companies what kinds of loans they really ought to give and to what sort of people, regardless of whether or not those people actually deserved a loan at all) would have limited greatly the current meltdown.

No. No sort of “thrashing” from the governmnet would have done diddly-poo to avoid the meltdown because the trolls in government set the table for the meltdown to occur…

“We sleep soundly in our beds only because ~~rough men stand ready in the night to visit violence upon those who would do us harm~~ Dear Leader Obama gives us leave to do so.”

But isn't whatever good for business...

charliehall Tuesday, December 23rd at 9:28AM EST (link)

good for America?

The US Chamber of Commerce supports a bailout of the auto industry:

http://www.chamberpost.com/2008/10/supporting-the-automotive-industry.html

Are they statists, too?

Charlie Hall

Uncertainty

midnightduck (Diary) Tuesday, December 23rd at 9:57AM EST (link)

The Market dislikes uncertainty. Government involvement in the market increases uncertainty because it brings politics more directly to bear on the market. Politics is personality driven. The only thing for sure is that commerce is going to cost more next year.
My personal prediction for next year is if the DOW breaks through support at 7500 then the DOW will hit 4000. BTW I expect the 7500 support level to be broken. Look up “dead cat bounce”

Policy is derived from ideology and implemented by character – me.

"Property was too valuable to be left to commerce."

Crowe (Diary) Tuesday, December 23rd at 1:56PM EST (link)

This article just tickled my little Cassandra heart.

Hugo Chavez was shocked by the size of a new mall being built in Caracas, his capital. He immediately declared that it must be nationalized and used as a hospital or school or university… The details can be worked out later:

Chavez, who has nationalized Venezuela’s largest phone company, electric utilities and oil projects, suggested the property was too valuable to be left to commerce.

“How are we going to create socialism turning over vital public spaces to Sambil?” he asked.

Rodriguez, the district mayor, said Monday that downtown communities would be consulted on the “most appropriate use” for the building. “We’re going to respect private property,” he said.

(I would have emphasized some parts, but the whole thing is rather telling and humorous in a hell-in-a-handbasket sort of way.)

Yes, commerce and private property are far too valuable to be left to commerce, eh? Like use of TARP funds or the projects/salaries/loans/etc. they are used on?

“We sleep soundly in our beds only because ~~rough men stand ready in the night to visit violence upon those who would do us harm~~ Dear Leader Obama gives us leave to do so.”