Monday, December 8, 2008

Why the world can't spend itself out of the Crisis

With the global economic downturn affecting everyone, countries all over the world are grasping for ways to avoid, or at least cushion, the blow from the crisis. One of the favorite methods from what I see is the shopping voucher.

The idea is simple; issue out shopping vouchers so that people will go out and spend. Taiwan is doing it, and the Germans want their government to do the same. The Singapore government isn’t doing it and I have to say I agree with them on this.

The problem I see with shopping vouchers is that people will only spend if they are confident in the economy. That is not the case now. Would you spend your money if you are unsure if you will still have a job next month? Already hundreds of thousand of workers around the world have lost their jobs and more will follow. Workers from America, China, to our own Singapore are looking at the clock and wondering if they will be next on the chopping block. Will shopping vouchers get these workers to the shopping centres? I think not.

That’s why I believe it is an error to think that we can spend our way out of this recession. The world cannot expect consumers to get them out of this economic downturn because there was never a lack of demand by consumers. The downturn came because of a flaw in the sub-prime industry in America; this global recession came from a structural fault in the world economy.

Fix that and we can get out of the global economic downturn.


Anonymous said...

Well, if it's that simple, then why aren't the Americans fixing the problem they created? Or why is it that the multi-billion dollar bailout proposed by the present US government seemed unable to pull the economy out of the sub-prime slump?

Something is amiss here, isn't it? Anybody smell a fish in this worldwide taunted crisis?

Ghost said...

Actually it is not simple at all. To fix a structural fault in the economy will require America to take some painful medicine; most likely the closing down of some banks and new laws on the lending practices there. Trying to spend ourselves out of trouble and hoping that consumers will bailout the world economy; that's the easy way out.