Monday, January 11, 2010

Economic recovery depends on government stimulus

This article suggests that the economic recovery is fragile and depends on government stimulus. The global economy continues to be in bad shape.

In my humble opinion, it will take a long time for the global economy to recover, if we continue with the free market capitalism. Here are some obvious problems with free market capitalism:

a) wide disparity of income
b) insecurity of jobs
c) financial sectors makes huge profits, without creating real value
d) bad business ethics and cheating
e) poor protection of workers and consumers
f) poor leadership from government leaders

If I am wrong, the global economy will recover soon. If I am right, be prepared for a decade of economic depression, or a change towards socialism (which is a better economic system, so I think).

3 comments:

C H Yak said...

Singapore govt. often claim our economy is one of the best managed in the world.

Even if they are right, items (a) to (f) have already happened to our economy. I agree Mr Tan is correct to say so.

I believe, it is in the interest of the world to see the world economy recover, ASAP; rather than to let it stagnant or depressed further for another decade.

Even if we stick to "free-market mechanism", my take is that a certain degree of change is anticipated toawrds socialism.

See how China has evolved in reverse mode; "reverse engineering" from socialism towards a certain degree of "market economy".

Say we return back to capitalism, will the commoners still trust the free market mechanism to operate freely and fairly.

Anonymous said...

With all due respect, I would disagree with the article.

Years later when historians examine this period, they will probably conclude that the financial crisis was but a short hiccup in the reordering of the global economic system.

This re-ordering began with the IT revolution and the subsequent Internet revolution which followed.

These two revolutions broke down the tradditional barriers and allowed business and labour to easily cross national boundries.

Business are currently in the process of restructuring their operations to take full advantage of the break through. It is uncertain how long the restructuring will take but it is likely that this restructuring will be the dominant economic force for the next 5 to 10 years.

As a result of this restructing, "First World" countries (Singapore included) are likely to see their standard of living stagnante or decline. Conversely, "Third World" countries (e.g India and China) are likely to see a continued increase in their standard of living.

This correction will occur until there is a new equillibirum where operating costs in "First World" countries are comparable to operating costs in "Third World" countries.

These changes will forever alter the global balance of power. While it is uncertain what kind of world will emerges after the restructing is complete, it is almost certain that this world will be radically different from the world of the 1980s or 1990s.

Most Singaporeans have a nostalgia for the 1980s and 1990s as Singapore then enjoyed the fortune of being better developed than most of the other countries in Asia. Singaporeans enjoyed higher wages and a higher standard of living which led them to believe that they are "superior" to the Chinese, the Indians etc. Those times are however gone and it is unlikely that they will ever return.

Ghim Moh Resident said...

Hi Mr Tan,

I agree with you being right.

I think the word socialism is abit far-stretched.

I will prefer a capitalist market with strict regulation.

We must be very clear in this point. Government are consumers of capital. They way the earn revenue is to tax businesses and its people.

It is market capitalism governed by strong government regulation that brings jobs to society. Just look at page 4 of the Business Times on 11 Jan. The US government wants to improve the unemployment picture by coming up with 1.2million temp jobs. You may ask what kind of jobs are they. Well, they are temporary workers to administer population count. These clipboard-toting workers are going door to door to verify the government popluation survey. Is that the best jobs the US government can think of? So is socialism the best solution? Ultimately its private businesses that create long term meaningful jobs to the people. Temporary jobs because of the mid-term general elections in the US end of this year?

This crisis can also be caused by lax government regulation. Remember bankruptcy laws is part of regulation and if we follow the bankruptcy laws closely, companies like Goldman Sachs, JPMorgan, AIG, Citibank, Morgan Stanley etc should have been made bankrupt isn't it? So is lax regulation by governments another cause of this crisis?

My view is economic recovery depends on reduction of government stimulus. Government stimulus will only prolong the suffering of the people. We need a depression, a correction to clear all the excess and toxic waste in the system before we have recovery.

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