Wednesday, 30 March 2011

“Nice economy you got there. Shame if anything should happen to it.”

Bankers and Government in discussion
The Buttonwood column in the Economist this week asks about the reason for the decline in living standard in the developed world - a decline continuing despite the beginnings of growth. Possible answers lay in Marxism - although the writer reminds us that Karl has "some confusion in his analysis", in the idea beloved of Mervyn King that we became "too dependent on consumption and had to switch to an export- and investment-led model" and in the decline of trade unions in the private sector.

But the favoured answer was very interesting as it points the finger at the financial sector and especially the unhealthy relationship between that sector's interests and the policies of central bankers:

One factor that should perhaps get more emphasis is the role of the financial sector. Central banks have repeatedly cut or held down interest rates over the past 25 years in an attempt to boost bank profits and prop up asset prices. With this subsidy in place, is it surprising that earnings in finance have outpaced wages for other technologically skilled jobs?

Attempts to remove that subsidy are met by threats from international banks to move elsewhere. This is a little reminiscent of the protection rackets run by the gangsters in Mario Puzo’s “The Godfather”. It is as if the finance sector is saying: “Nice economy you got there. Shame if anything should happen to it.”


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