Global Investing

Robin Hood in reverse?

December 1, 2008

Thirty-first U.S. President Herbert Clark Hoover once said: “Blessed are the young, for they shall inherit the national debt.”

Governments around the world are borrowing heavily to finance their fiscal expansion – unprecedented in size and scale – to prevent severe economic downturn.

However, outspoken independent economist Roger Nightingale thinks fiscal stimulus will not work.

He predicts a severe, Japanese-style recession to hit major and developing markets.

“There is no way out of this problem. Fiscal policy won’t help it at all,” he told a conference in London.

“It’s taking from one type of people and giving it to another… It’s net zero. It’s taking from non-banks and giving to banks. It’s taking from the innocent and giving to the guilty. It’s Robin Hood in reverse.”

Comments
7 comments so far | RSS Comments RSS

I would agree with Roger Nightingale. I lived through the ‘lost decade’ in Japan and it looks all too familiar: it’s like, what’s the cliche I should use, watching a car crash in slow motion. There will most likely be a prolonged period of deflation.

Living in London, I can only say that the situation in the United Kingdom is far worse than was the case in Japan or compared to the US now: the level of personal indebtedness, job insecurity, no industry base (trade in goods) that can benefit from the fall in the currency, a smaller domestic economy …

I keep hoping that I will be proven wrong, but will I?

Posted by MW | Report as abusive
 

This is news? Predicting a recession to hit major and developing markets right now is like predicting rain in the middle of a thunder storm.

And as for “Taking from one type of people and giving it to another”, this is absurd as well. How on earth can you call the next generation “people” when they haven’t even been conceived yet? Nightingale got the part about taking from the innocent and giving to the guilty part right though.

Posted by Peter | Report as abusive
 

Mr. Nightingale is `correct. However the real cause of this economic collapse was the demand for energy. To heat up the economy with a traditional massive stimulus would put an upward pressure on the cost of commodities and energy as earlier this year. Eventually this would lead right back to were we are.

A structural change in how we produce and use energy as well as resources is the only way out of this mess. This would be an enormous expense and undertaking that would undoubtedly pay dividends in the future. However there are no market incentives to develop the much needed energy solutions that a healthy 21st century economy and environment require. This leaves the decision to act or not act in the hands of government. I hope the political leaders of the world choose the correct path.

Posted by Anubis | Report as abusive
 

Regarding Mr. nightingale’s article, a net zero imput? I don’t think so. Show me any person or country that has ever borrowed their way out of debt, and I’ll take a second look.But, if the goverment is going to try to avoid the present economic unpleasanties through an infusion of cash, GIVE IT TO THE TAXPAYER, who will ultimately pay for it. Divide up the amount the goverment wants to introduce into the economy equally among all over 18 legal residents of the US who paid taxes last year. It would have to be posted to a US bank account. Running a simple credit report would reveal the account owner’s debts. Checks would be written to bring the account owner up to date on past due bills and mortgage payments (not to totally pay off debts). The individual could then buy that new refrigerator or car (maybe restricted to American manufactured). Creditors are satisfied and the multiplication factor of individuals spending new money would be much greater than the “net zero” effect of bailing out big corporations. Taxes would return to the goverment a great deal of what is distributed. Sounds like a win-win situation.

 

To Mr Nolan:

This is an interesting concept. The government pays off outstanding debt for those who have lived beyond their means. Others who live in trailers and have cut back on beer or cigarettes will finance the 52″ flat screen TVs of people who can’t resist a marketing pitch.

Posted by Jeffrey Tischler | Report as abusive
 

Kudos to Anubis! I would only add this. If the tiny nation of Iceland can develop a totally 100% hydrogen fuel economy, so can we. They are not the only ones in the world intent on doing this either. Hydrogen is safe, the most abundant element in the universe and the only fuel that is 100% void of earth destroying emissions, when burned. Yes, Iceland has an advantage with it’s thermal steam resources, but there other ways we could develop to remove the hydrogen needed for fuel. Finally, we need not only government action, but industry must be convinced that such an effort is not only essential, but profitable. Whole-hearted cooperation of both are absolutely essential for the successful developemnt of a national hydrogen fuel economy.

Posted by Donn Bogert | Report as abusive
 

Jeffrey, I found your comments to be hilarious and true, which leads me to the next question: What idiot came up with the concept of spending this stimulus check on a big screen TV anyway? No disrespect Thomas, but for some people what’s the use of putting Monday in their hands when they aren’t educated enough to know what to do with it? You would be amazed of what people would do with their money, but that’s not the topic at hand. Anubis I also agree, but why should the government help out what many of the corporations industry leaders already knew? At this point this is more of a rhetorical question because so much damage has already been done. It would be expensive and challenging to change the way we fuel the economy and remain profitable, but we can see just how resisting change has worked for some motor industry companies now.

Posted by JS | Report as abusive
 

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