End the nonsense about stimulus

End the nonsense about stimulus

The nearer April’s general elections draw, the more fervent the drumming up for economic stimulus is. Even the far left has shifted behind vulgar Keynesianism in its entirety and is demanding more bail-out cash to achieve growth and get rid of unemployment. This is ironic because the greatest theoretician of socialism, Joseph Stalin, considered such talk to be nonsense. In his opinion, growth and employment problems could only be solved through a planned economy and, if we permit a quote,: ”a planned economy cannot be created without doing away with capitalists and without doing away with private rights of ownership of the means of production” (source).

Although Keynes really believed that an expansive financial policy helps to fix the effects of the disruption caused by negative overall demand, he definitely didn’t represent the view that increasing overall demand works as a panacea to all the problems of the economy. Therefore it’s relevant to ask whether we currently really have a temporary deficit in overall demand or some other problem instead. If we look at the structure of overall demand, it becomes clear that there has at least been enough domestic demand. Since 2007, the expenditure of the state, for example, has grown by 15 billion euros. In the same period, exports of goods have shrunk by over ten billion euros. It’s not necessary to examine the structure of the balance of resources for too long to understand what the issue is. The competitiveness of the economy has become badly eroded and as a result exports have diminished drastically, while imports have increased correspondingly.

How can this kind of structural problem be fixed through economic stimulus? After all, stimulus only increases public spending, raises cost pressures (i.e. further weakens competitiveness), and increases imports and thereby foreign indebtedness. We have already been resuscitating the economy intensely since 2009 in the belief that an improved climate will begin in six months’ time. These forecasts have proved to be self-deceiving every time. The report published on 13.1.2015 by the Economic Policy Council continues along the same lines by predicting that the economy will attain balance in 2017-2018. For forecasts like this to be credible, it should be possible to say what the mechanism is that will take care of balancing out instead of improving competitiveness. I have seen no such explanation to date.

When the belief in overall stimulus starts to waver, it has become customary to talk about revitalising investments, but still no-one is thinking about stimulating exports. That idea also seems doomed to failure. If private investments are not started up with the current zero interest rate, the fault is surely not in financing or domestic demand. Of course, public investments can be increased, but what comes to mind first is constructing (museum) railways to God knows where and bridge projects for the constituencies of politicians. Even though the level of public investments in Finland has been impermissibly low, that is not the basic cause of our current structural problems.

In the current situation, stimulus is not only a political mistake but also a moral problem. We are shunting our economic problems onto the back of our children. We are keeping up a higher level of consumption than the production and revenue of the national economy give us the right to have. At the same time, we’re becoming indebted, and not only domestically but also abroad. We’re hoovering up savings from the international money markets for our own spending, which should in all reason be used for the industrialisation and growth of developing countries. All this only because we don’t want to admit the facts, but instead want an easy way out, one to which all the verbal images that arouse affection are attached. When consumption in line with income is impoverishment, the game is hopelessly lost.

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