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Have our economists finally gone mad, asks John Highton.
A joke that I always liked indicated that weather forecasters were invented to make economists look good. This resonates with the widespread feeling that economic theorising and forecasting are unreliable.
Unfortunately, the joke is now on us as more and more bizarre economic ideas are made reality.
What really sticks in my craw is the prospect of negative interest rates. As good little "Capitalists'' we were always taught that saving was a virtue and that building up a nest egg for retirement was a major life goal. Now we face the prospect of negative interest rates that tell us that saving is bad and we should spend all our money now. This is bizarre and defies common sense.
Can we still even call ourselves a capitalist society if capital is made a liability by negative interest rates? What has become our priority if not capital? If we look at what has been protected above all else in recent times it has been banks. Every effort has been made to preserve them when they have malfunctioned. Furthermore, all the economic adjustments that have been made have increased the power and influence of banks in our lives. In recent times we seem to have switched from "Capitalism'' to "Bankerism''. Everything that we have done has been to the advantage of banks and our "local'' (Australian) banks continue to behave badly but still make record profits.
Despite this we are still leaving it to bankers to come up with solutions. Is it any surprise, then, that the answers are mainly to the benefit of banks?
Will our current "Bankerist'' policies of negative interest rates achieve their goal of igniting business activity? The answer is no. Common sense says that force-feeding businesses with negative interest rates when they are not "hungry'' will not work. Everything indicates that businesses do not feel like making major commitments at present and the global situation is certainly not conducive. Thus, present global economic circumstances and leaving the banks in charge suggests that interest rates will continue to fall, businesses will not respond, and that we will continue on this surreal path to negative interest rates.
Another bizarre aspect to this is that there seems to be no squeak of protest. Do we all accept that what the banks are doing is for our benefit or will the main beneficiaries once again be banks and house prices? I think it is time that we said through our political representatives that enough is enough. It is clear that the current economic thinking is not going to achieve positive outcomes. These policies will take us into uncharted economic waters that become progressively more weird and unrecognisable as time goes by.
I really hope that someone is going to have the courage to step forward and say that enough is enough.
It is time to stop this strange economic fantasising that will not work in the real world, and point to some real and practical solutions.
With banks and businesses locked into this failing system that becomes more bizarre by the day, it has to be central government that steps in to point to a sensible solution.
What better than a Labour-led government to put some tempting morsels in front of our businesses to whet their appetites?
Now would be a good time to come to our senses and to commit some serious money to work on our very weak infrastructure and to aim for some meaningful real-world economic goals such as increased productivity.
In New Zealand we have always prided ourselves in having some common sense so let's demonstrate that by getting real.
- John Highton is an emeritus professor with the University of Otago's Dunedin School of Medicine.