Macroscope
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Central banks are complicit in the ‘greed is good’ culture. It’s time to put the many before the few

The rich and privileged have been the biggest beneficiaries of zero interest rates and cheap money since 2008. It is time for a radical change

PUBLISHED : Monday, 22 January, 2018, 9:55am
UPDATED : Monday, 22 January, 2018, 10:48pm

Whatever happened to rational moderation? At one time central banks used to lecture markets about the dangers of “irrational exuberance”, excessive risk-taking and extreme moral hazard. How the world has changed. Gordon Gekko is back with a vengeance and suddenly “greed is good” again. Fear is for the faint-hearted, money never sleeps and there’s no better time to make a fast buck.

“Rational despair” is the last thing on investors’ minds right now and no wonder, considering the complicit support of global central banks, creating money like it was going out of fashion. It was the “fire and fury” of central bank super-stimulus that saved the world’s bacon after the 2008 Great Recession, but the risk is it’s badly overshooting the other way now.

Central bankers seem more attuned to the wealth-accumulation of the billionaire super-class than the real needs of ordinary folk who make up the rest of the planet

The global financial boom is proof that central bank policies have gone too far and are creating pre-conditions for a bad fall before too long. Their prime role should be ensuring sustainable, non-inflationary recovery for the many, not treasure-building for the few with access to cheap and easy money and the wherewithal to exploit it. Central bankers seem more attuned to the wealth-accumulation of the billionaire super-class than the real needs of ordinary folk who make up the rest of the planet.

The list of shaming wealth-inequality statistics is endless, but the one that sticks out most is the brutal fact that the globe’s six richest people own as much wealth as the poorest half of the world’s population. It is a sad reflection that for all the cheap money floating around the world in the last decade, poverty, deprivation and disease are rife in too much of the emerging, third and first worlds. The rich and privileged have been the biggest beneficiaries of zero interest rates and quantitative easing since 2008. It is time for a radical change.

There is nothing wrong with world financial markets being feisty and exuberant, but not when they become frenzied and irrational

There is nothing wrong with world financial markets being feisty and exuberant, but not when they become frenzied and irrational. There comes a point when world leaders need to think long and hard about rebalancing macroeconomic policy away from the few in favour of the many. It means speeding up the monetary policy taper and toning down fiscal austerity to ensure the benefits of recovery stimulus spread more evenly and equitably.

The problem is the global policy mindset still remains stuck in post-1980s thinking. Neo-liberalism is still alive and kicking, despite all the dire destruction wrought on the world in 2008 after wild and reckless financial opportunism brought the world to its knees. It was only emergency post-Keynesian intervention by governments and central banks that spared the world economy a much worse fate.

It has hardly been a tough lesson learned though, as 10 years on markets are back to square one and still testing extremes of euphoria and risk-taking. Despite all the huffing and puffing about “never again” and banks and markets supposedly being bound by better supervision and regulatory control, old order thinking still rules. Markets and corporations will continue to enjoy free rein over cheap money, benign tax regimes and overly cosy operating environments.

It has hardly been a tough lesson learned, as 10 years on markets are back to square one and still testing extremes of euphoria and risk-taking

The International Monetary Fund’s outlook for 3.7 per cent world economic expansion this year seems reasonable but growth could still be better and more long-lasting under sustainable macroeconomic policies. Supranational organisations like the IMF, the World Bank and the Group of 20 could provide a vital lead, but economic cooperation and policy co-ordination have taken a very hard knock under President Trump’s “America First” policies.

If the world is to be weaned off the addictive “fix” of cheap money, financial market stability needs protecting. The only way this is possible is through better global fiscal stimulus. And not the sort of US-styled tax reforms that steal from the poor and give to the rich through overgenerous tax relief, merely lining the pockets of privileged individuals and extremely powerful corporations.

It will require much better investment in public infrastructure, transport, health and education where multiplier effects will have a much longer-lasting effect on economic growth, employment, welfare and prosperity than the fleeting blast from fast-made bucks in the markets.

Most of all, politicians must pursue responsible fiscal policies that avoid the chaos arising from pointless government shutdowns and reckless political horse-trading.

It is time for world leaders to get a sensible grip on global growth before it is too late.

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