Both stock markets and individuals, it seems, take encouragement from the growing involvement that government is having in the economies of North America and Europe. When stimulus packages are announced or pass milestones such as upper or lower house approvals the stock markets take a happy skip and we all feel a bit better. Maybe surrounded by so much gloom it is understandable. Maybe in the short term, there is no tenable alternative but it seems very little consideration is being given to how and when government is going to back out of this increased role it is taking. As the last ten years of financial globalization and free reign capitalism are rolled back, influence is rapidly moving towards the state.
As Reuters observed from the World Economic Forum in Davos this week, globalization has done more to raise the living standards of the emerging world and in a shorter time than any other economic trend. One of many risks associated with the much enhanced state role in our economies will be an almost irresistible move toward protectionism. The Obama administration has already laid down the first markers with comments by Tim Geithner on China’s currency, no doubt with Hillary Clinton in the wings loading the next musket. Not only will this desire to make the most of domestic stimulus packages and protect domestic jobs build over the coming months but with nearly all the governments of the western world currently positioned left of center the trend could become entrenched. The Telegraph, reporting from Davos, raises similar fears and goes on to observe that governments are a) poor allocators of resources and b) unwilling to relinquish power once they have acquired it. The conclusion being we could be willingly marching into a decade of higher taxes, increased government regulation of business, and protectionist squabbles with our erstwhile trading partners around the world. A case of short term gain and long term pain.