Wednesday, February 25, 2009

World financial crisis: State vs Market

Whether any argument is true or not often economists and experts try to escape by claiming two routes one is blaming politicians and the other one is government institutional system. But it is like wounded people try to look for first-aid. Simply that is the situation of government institutions and the politicians around the world. Of course there are others who look at things in radical way. But how these wounded are managing their role in the debate is altogether different issue. It is almost a mess now in the debate of who created world financial crisis, and every one will agree it is the US but how it has created? Different pundits look at it in different way. Some are here:

Swaminathan S Anklesaria Aiyar says:

  • “Political measures to subsidise ownership and discourage renting have contributed to terrible lending and borrowing practices that caused the current crisis. Instead of reforming these, the Obama Plan provides billions to subsidise those same terrible practices”. 

Deepak Lal writes:

  • Obama is planning to enlarge. Walker also warned that the crisis could not be solved by growing out of the problem, eliminating earmarks, wiping out fraud, ending the Iraq war or cutting defence expenditures, restraining discretionary spending or letting the Bush tax cuts expire (US, GAO-07-389T, p.18). These are the very policies that Obama is hoping will reverse exploding future deficits. With projected reductions in military spending, it seems likely that the US, like its Roman predecessor, will find it difficult to maintain the sinews of the forces that have held the global order together. With no obvious alternative to provide this global public good, I fear the ensuing erosion of the global order, which is so essential for the processes of globalization to work, is likely to be the most serious long-term consequence of the global financial crisis.” 

Importantly, Percy S Mistry pointed out more like argumentative:

  • It is obvious that we are reposing too much faith in governments. Because we are convinced that markets have failed, we assume that talking heads know better. They don’t. They just talk louder. As a result of flawed government actions, what was a liquidity problem has now become a solvency crisis with secondary and tertiary effects. In 2007-08 the size of bank insolvency kept increasing as governments fumbled. It has exploded as government actions turned what started out as an American financial crisis into a global economic crisis. Government failure has converted what might have been a short recession into a long depression. The assumption that, when markets and banks fail, governments will automatically succeed, is wrong. Evidence suggests that governments have failed even more; because of the nature of political (and legislative approval) processes, bureaucracy, inefficiency, and compromised delivery that is endemic in governments, more than in the private sector! What’s the evidence?” 
  • In the current scenario the public choice theorist are seems to be balanced but Mr Mistry says it does not “The fantastic sums mounting in the black hole of bank balance sheets are resulting in wet diapers, and screams for triggering the nuclear option: i.e. nationalising global banks! This is advocated by Greenspan (who, with Bush Jr., is more responsible than bankers for the mess we are in), senior members of the US, UK and EU parliaments, as well as ‘public choice’ academics. Based on experience with nationalised banks around the world over time, and the UK’s experience since August 2007, that proposition is insane; even if it is advocated as temporary, for nursing the banking system through intensive care!

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