What don’t we read about this!

So far belt tightening was of the order; but after the French presidential election and the Greek legislative vote, unleashing growth is becoming the new mantra.

But as always, the debates remains limited to what should or should not be said or done. As for actual solutions this remains clear as mud.

It is known that over-indebted governments have no more room for manoeuvre, that the economy is activated only in an ephemeral way by public investment programs, provided that these states can raise the necessary funds to make these investments, and that growth is impossible to obtain by decree.

How will it all wind-up?

1. It never ends!
2. Debts will be absorbed by hyperinflation. The longer we wait to let it start the longer will we be licking the bitter pill before having to swallow it anyway.
   Unfortunately with all delays orchestrated by the European leaders, this may take long, too long.
3. The real disposable income will fall sharply (in Greece it is already at 20-30%, which may be just the beginning).
   So we will keep our car ten years rather than three, leave it in the garage, eat less meat, renew our wardrobe less frequently, make holidays at home, and refrain from getting sick.
4. The nominal interest rates will rise, but not necessarily more than inflation if central banks do not react in a Pavlovan manner.
5. Fortunes will be slashed (savings, life insurance and pension funds), others will be built. This will remain as just or unjust as before, but differently.
6. If nominal incomes fall too, so it is not impossible that employment could be maintained at a fair level.
   But if we strive to maintain the purchasing power and to guarantee minimum wages, then the true minimum will be established outside employment, at the level that unemployment funds may still pay, or social protection programs that the states will still afford paying.
7. Public opinion will resign; but the published opinion will call to rebellion and even to revolution. What an opportunity?
   But if so [alas likely], it will result in a return to point 1 above, with an additional spell of blood.
8. Gradually trust will be rebuilt; credit will be granted again; consumption will grow as well as tax revenues.
9. We’ll forget; only economists will have an additional story to analyse, albeit without drawing any really useful lesson for the next surprise.
10. While waiting for the next wave we are strongly advised to learn Chinese or Hindi.

This is what is called the “best case scenario.” Any alternative will imply conflicts where victims designate and punish the guilty, without knowing who the victim is and who is guilty. The anti-globalization activists, apostles of negative growth, never dare describe such a scenario, that they yet pretend to call their vows.  It is because its realisation would leave them powerless, not even able to express outrage.
To achieve this peacefully, it is essential that governments are content to keep the boat afloat, to ensure that the framework conditions are optimal, to take vacations, and to refrain from a destructive and electioneering oriented activism. From this point of view we have little to complain about our Swiss Federal Council. This is why it is important not to get him elected by direct suffrage.

Again, some laissez-faire is certainly on a higher moral ground than activism.