The Trade-off Between
Economic Stability and Economic Growth
Economics Without The B.S.**:
[** Double entendre intended.]
This is a good article in the Wall Street Journal
that illustrates what I see as a problem in our economy -- financing long-term
investments with short-term loans. It is a way of showing we have an investment
community that is more situated in what is called "rentier
capitalism", earning income on the cash flows of an asset/investment
rather than an emphasis on increasing the productive output of a capital
investment that grows an economic opportunity that is new, what was more likely
in an industrial economy.
It makes the investors constantly vulnerable to
the fluctuations of short-term interest rates; in effect the viability of their
investment is subject not only to the productiveness of the asset but also the constant
variability of the short-term financing.
When enough businesses operate this way, dependence on short-term
financing of long-term investments, it puts pressure on our Fed and government
policy for encouraging low interest rates, which in my opinion offsets higher
rates of economic growth.
In other words there is a trade-off between lower
interest rates, more moderate growth rates, in effect economic stability, with
higher rates of growth which can result in a tolerance for more speculative
ventures. It is a trade-off between stability
and growth, in effect between stability and societal change -- trying to find
the sweet spot between the two at any point in time subject to change.
Another way of looking at it is how much vitality
in a society -- acceptance of change -- is related to more vitality in economic
activity by encouraging higher rates of growth? And since the U.S. provides the
economic leadership in the world and the dollar is the primary reserve currency
for international financial transactions and commerce, how much effect does
U.S. policy have on other less developed nations and the rest of the world?
