Why is the economy so bad?

Why is our economy so bad? Where is growth? We are all asking ourselves these questions but our society is failing to give us answers and most of all it is failing to do something about it. I think that to really understand why this is happening we need to ask ourselves a fundamental question “What does it take to produce prosperity?” I can summarize it in 3 points:

  • Property Rights
  • Stable Money
  • Freedom of Action

Property Rights: You have to be able to control and enjoy the things you produce

Stable Money: We need a stable medium of exchange. Once upon a time money was backed by gold… in today’s society money is backed by promises and empty words

Freedom of Action: We need to be able to run our business without much government intrusion. Have you ever tried to open a business in Europe? No wonder we are in recession…

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But why is western based capitalism failing?And why are emerging, traditionally non capitalist economies (such as China) doing so well ?

The answer is simple and it’s about the third point of our list: Freedom of Action. Although we believe we possess freedom of action in our “democratic” society, the structure of our economies is becoming over-complicated and over-regulated.  This is the exact opposite of what is happening in China. Their growth is not due to the action of an intelligent government but simply the economy is growing DESPITE the government. That’s because business in China is less regulated, thereby much easier, faster in terms of time and cheaper in terms of taxes and regulatory costs. Clearly, western governments are suffocating their already fragile economies with excess bureaucracy, therefore the costs rise and the growth slows.

Perhaps more worryingly is the means in which the West derives its wealth. In China, prosperity is strongly linked to the production and consumption of physical goods, tangible assets. However in the west growth is all but a mirage, driven instead by intangible financial products and services as well as debt. Aware of this, our central bankers are artificially keeping the interests rates at record low to lower the cost of money and promote inflation to lower the burden of debt. But what about our second point, stable money? With the excessive printing of money we are actually devaluing our currencies and therefore hurting the stability of our medium of exchange. What is the result of all this? Essentially, the big investors can use the cheap money from our central banks to get even richer while the middle class struggles to borrow enough money to pay their bills. Is this fair? And is this sustainable? I would like to hear your opinion, please comment below

 

By Gianluca Fontana

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One Response to "Why is the economy so bad?"

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