Apparently, the G 20 are meeting in Istanbul to discuss the same thing they discussed last time around, namely how assorted government minions can supposedly “create economic growth”. The crucial problem with this notion is of course that they can’t.
Growth is the result of entrepreneurs seeking to serve their fellow human beings by engaging in profitable business. Profits – ephemeral though they are – represent proof that a business is providing a valuable service. There is only one small caveat to this: profits that are the result of privileges bestowed by the State (whether in the form of monopoly grants, tariffs, the sanctioning of direct breaches of property rights, etc.) are an exemption from this general rule.
Painting by Joseph Ducreux
No government anywhere makes a profit, and if one of them did produce a surplus, it would only indicate that the revenue it obtains by coercion temporarily exceeds its spending by some mistake. One might object that governments are providing services which by their nature are unprofitable and would therefore not be available in a completely free market economy, in spite of the fact that there is broad agreement that they are desirable. This contention is however not provable. In fact, it seems rather likely that there is not a single government-provided service that could not be supplied more cheaply and more efficiently by an unhampered market economy, including judicial, policing and defense services.
However, we digress – our main point is that governments can per se not produce economic growth. Government spending is added to GDP, but this doesn’t really represent growth; it is simply government consumption spending en lieu of private sector spending. Every cent the government consumes can no longer be invested or consumed by the private sector, because that is where every single one of these cents comes from. The only thing governments can actively do is getting out of the way. However, countless planners would then have to move from government to the private sector and actually do something productive. So it is a good bet it won’t happen.
Reuters reports with not even the slightest trace of irony that “finance ministers and central bankers” are supposedly tasked with “spurring global growth”:
Finance ministers and central bankers face a tough task coordinating action to spur global growth at G20 meetings this week, with major economies running at different speeds and monetary policies diverging.
Concern over the ability of the United States to sustain the global economy as most of the world slows will be high on the agenda as the Group of 20 leading economies hold talks in Istanbul on Monday and Tuesday.
The meetings come as Greece casts a new shadow over Europe, cheap oil plays havoc with inflation and growth forecasts and a strengthening dollar threatens emerging economies.
“There is a lot at stake,” IMF Managing Director Christine Lagarde said in a blog post on Friday. “Without action, we could see the global economic supertanker continuing to be stuck in the shallow waters of sub-par growth and meager job creation.”
(emphasis added)
The burnt-to-a-crisp IMF leader might have considered using something else than this unfortunate shipping analogy. The real super-tankers are indeed stuck in what appear to be decidedly sub-par shallow waters:
The Baltic Dry Index has just collapsed to an all time low. Shipping analogies seem to be quite inappropriate in the context of “growth” at the moment, via StockCharts – click to enlarge.
If we read one more time that “cheap oil plays havoc with inflation” we will probably throw something across the room. Of all the stupid memes the etatistes are routinely regaling us with, this one surely takes the cake (we suspect that the owners of ships receiving the charter rates currently indicated by the BDI are praying day and night that low oil prices will be “playing havoc” a little while longer).
Ms. Lagarde indicates how shallow the waters are in which the “global economic supertanker” is currently stuck.
Photo credit: AFP
The Song Remains the Same
These meetings mainly appear to be a kind of vacation for the political and bureaucratic classes, an opportunity to get wined and dined in far-away places on the taxpayer’s dime. It seems nothing has changed since the last meeting, and indeed, the meeting before that. The whole thing reads rather like a report on a Soviet GOSPLAN meeting deciding on the next 5-year plan:
“World financial leaders agreed last year to launch new measures to raise their collective gross domestic product growth over the next five years and create millions of new jobs.
The pledge, called the Brisbane Action Plan, entails about 1,000 commitments. European officials said leaders in Istanbul were likely to agree to focus down to just 5-10 priorities per country to make them easier to monitor.
“Kick-starting global growth will be front and center” at the G20 meetings, Canadian Finance Minister Joe Oliver said last week, citing the stalled euro zone, slowdowns in China and India and geopolitical crises in Ukraine, Iraq and Syria as key risks. “Though America is carrying the world economy at the moment, that is simply not sustainable,” he added.
Germany is likely to argue that its rising domestic demand and plans to increase public spending show Europe’s largest economy is doing what it can, according to European sources familiar with the G20 agenda.
[…]A senior Canadian official said the G20 communique would probably emphasize the importance of central bank actions in sustaining demand and said the Fed and Bank of England had voiced support for other central banks’ actions to lift growth.
(emphasis added)
Right, “world financial leaders” will snap their fingers, and presto, “global growth” will be lifted by $2 trillion. We do believe though that at least $2 trillion are going to be printed by central banks in the time period discussed. We should certainly get a modicum of pretend growth out of that, complete with even more consumption of scarce capital.
There is nothing to be “kick-started” though. The economy is not a car engine that has stalled on account of global warming-induced freezing temperatures. Incidentally, where we live it is so cold right now that one is almost tempted to think Al Gore has dropped by for a visit. Stalled engines undoubtedly abound at the moment. Perhaps some of the hot air produced in Istanbul will be wafting in our direction? One can always hope.
One thing is new to us though: last time around we were told that the original “900 plans” had been whittled down to 800 plans (see “Vacuous Blabber Association Meets in Brisbane” for details), but it says above that the Brisbane meeting ended with 1,000 of them – now apparently renamed “commitments”. This sudden inflation in the number of plans has an air of the miraculous.
We suspect that the promised “millions of new jobs” will end up furnishing us with yet another climate alarmism analogy: they are likely to suffer the same fate as the “50 million climate refugees” we keep expecting to turn up at our doorstep any day now. Oh well, at least one of those has shown up in the meantime. We’re a bit less certain about the jobs.
What else is there to report? Oh yes, we must never tire of adding even more regulations! In a slightly Orwellian twist, the act of adding more regulations to the ever-growing pile of same has been nick-named “regulatory reform”:
“Bank of England Governor Mark Carney urged the G20 to mount a “big push” to implement global regulatory reforms, fearing that governments may be tiring of non-stop rule-making since the financial crisis six years ago.
Carney was speaking as head of the Financial Stability Board which, since Lehman Brothers crashed in September 2008, has coordinated a raft of new banking and markets rules to make the financial system more resilient.
Obviously, this non-stop rule making cannot be allowed to ever slow down or stop. Until everything that is not expressly allowed hasn’t been prohibited yet, we will never be safe. And of course there can be no proper government-decreed “growth” without millions of rules and regulations. This is one area where we believe government is actually capable of producing growth. At the current pace, the moment when the number of regulations on planet Earth exceeds the number of particles in the universe (approx. 10 to the power of 88) can not to be too far away anymore. Surely bureaucratic Utopia lies well within our grasp.
Mark Carney: regulations must be piled this high. Then the asset bubbles blown by central bank policies will never crash again.
Photo credit: Reuters
Conclusion:
This time the media neglected to report how costly the G-20 pow-wow was (the last one in Brisbane cost a cool $400m.), but it is definitely a giant waste of money and effort. It seems to be a kind of occupational therapy for bureaucrats, combined with an expensive vacation. It is no big secret how economic growth can be improved: Simply make the economy more free, by reducing regulations, taxes and government intervention (it is noteworthy that not one of these items is ever mentioned in reports on these government shrimp-fests). Neither 800, nor 900 nor a 1,000 government plans are likely to be a successful substitute.
