Sunday, January 18, 2009

The Government should save the economy

Since the beginning of the financial crisis we keep hearing that the government should save such and such because if it doesn’t everything will fall apart. We’ve seen huge amount of money fuelled into banking but the crisis as not slowed down it speed up. Now all around the world people are clamoring for the government to increase spending, increase taxing do everything to save the economy, it sound like a panic where everyone is turning toward the first authoritative figure in the room and asking: SAVE US!

But shouldn’t look at the past action and result of that authority figure before we hope it will save us from this crisis? In the past years, at least in Quebec, the government has been involved in a lot of rescue attempt, to save companies from bankruptcy. Most if not all of them resulted in spectacular failures, oh some companies where “saved” and by that I mean that with constant cash inflow from the government they are spared the shame of closing, in the process keeping jobs in a region and vote for the political party that promises to keep the cash coming. In short, in the past government help seldom resulted in a real economic cure but it became an economic artificial life support.

What I don’t understand is that it quite easy to see why things happen this way, yet people continue to use that solution. It’s human nature at its worse, why find new and better way to produce our product so that we can compete with the other producer when someone is willing to give you money to offset your lack of sales? Companies doing this are easy to spot with a simple test, cut the money flow for one year, if they must close it means they did not use the cash to improve themselves and become competitive but instead to count as additional revenue and pocket it. It a show of laziness, but given that our society consider planning for 2 years in the future long term planning and that the average government exist for 4 to 8 years in Canada, it easy to see why it would be a preferred choice. Furthermore the basic principles of democratic society help this along, if party A give money to keep a companies and job opens in an area and party B won’t there are pretty good chances that the people working for the companies will vote for party A.

Now you might wonder what do I think the government should do in the next few years to help the economy go back on tract. Well, it not easy, it’s not simple and it involve been almost certain not to be reelected (particularly in Canada’s current minority government situation). First, reduces taxes given people and companies more money, don’t expect that money to be sent back in the economy and credit to soar again; instead it will be used to pay back debt and go into savings. While this will slow the economy down further it will also build back confidence and funds to be lend to companies with new idea and for new developments. Second, the government should reduce trade restriction (at least on basic material) to increase the volumes of trades going on that will really stimulate the economy, which is completely based on the amount of trade going on. Finally and that the biggest and hardest thing, reduce the amount of bureaucratic red tape preventing new companies from being open or closed.

That should really help people get back toward economic help, not giving billions after billions to companies that are only gonna use it to survive one more year and retire their CEO in golden paradise.

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