But U.S. seen as strong

Carlos Alberto Montaner

The first paradox is almost amazing: The culprit has become the hero. The United States, the country responsible for the world's worst financial crisis in the past 50 years, is the only economy trusted by the rest of the world. The euro, the yen, the Swiss franc and the pound sterling devalue rapidly in relation to the dollar.

Everybody knows that the catastrophe began in the United States with the truculent financial engineering of subprime mortgages -- some dark operations that bordered on fraud -- but the more the disaster deepens, the stronger is the conviction that the United States' economy is best prepared to weather the storm.

• Second: The United States is dealing with the crisis by resorting to the rather questionable expedient of printing trillions of dollars to inject liquidity in the economy. Supposedly, this is money that U.S. society, through its government, lends to the financial enterprises so that they, in turn, may continue to make loans, even though the big problem was caused by irresponsible indebtedness and a chronic lack of savings.

With this measure, the country retards the adjustment instead of accelerating it, distorts competitiveness and eliminates the risk factor from commercial transactions, thereby totally adulterating the essence of the market economy. Why behave prudently if Big Daddy government will come to our rescue? On the other hand, that huge mass of new money, which does not come from an increase in production or productivity, will inevitably turn into inflation or will be used to keep prices artificially high.

• Third: Success kills. There is nothing more dangerous than social conquests in times of crisis. When benefits and wages are very high and have become acquired rights, companies cannot survive the crises. That's what happened to the American automobile makers. They die (or lie in their death beds) not because they manufacture worse cars than the Japanese or the Germans -- although there's some truth to that, according to auto buyers -- but because they lack the flexibility to adapt to the periods of economic contraction.

Unless the labor unions understand that the market economy is like an accordion that sometimes expands and sometimes contracts in response to thousands of imponderable factors that escape any calculation or plan, the workers will end up harmed every time the lean years come around.

• Fourth: The experts are almost useless. We must admit that economics is not a science ruled by mathematics but an activity guided by changing psychological perceptions, as Ludwig von Mises maintains in The Human Action. Wherefrom we deduce that the opinions of experts must always be taken with a pound of salt. The famous ''bubbles'' that cause the major disasters are all alike: growing numbers of people become enthused by the idea of making big profits from some endeavor (the Internet, real estate, simple loans). This works fine for a while, until the investors begin to disappear, sometimes because they become suspicious; finally, stimulated by fear, a cascading collapse occurs.

• Fifth: The drop in the price of oil is both a blessing and a curse. The only way that alternate sources of energy can be profitable (the wind, the sun, ethanol, nuclear plants) is if the barrel of oil costs too much, so long as the black gold is not blamed for the huge military cost of a Western presence in the Middle East or the destruction of capital provoked by the spectacular hikes in the price of a barrel of crude, as has happened several times. Since the days of Nixon, the seven presidents who have occupied the White House have broken their promise to eliminate U.S. dependence on imported oil. I fear President-elect Barack Obama will do the same if the cost remains low.
 

December 09, 2008

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