Anarchy in the UK, downgrade of the USA credit rating, panic about France and its banks, let alone the issues with PIIGS countries, the unrest in the Middle East, and the femine in the Horn of Africa.
The most interesting explanation for criminal behaviour in the UK I've seen was presented by a Sky News reporter, who recorded looting on his phone. "Are you proud of what you're doing?" he asked one young woman who was stealing goods from a destroyed store. "I’m just getting my taxes back," she replied. We all understand that this is a pretty foolish excuse for plundering.
The European Central Bank prevented an immediate Euro meltdown with its purchases of Spanish and Italian bonds, but there's little to indicate that governments have the ability to use all tools and time they've been handed to strengthen the Euro Zone. In the USA, the discussion remains firmly focused on fiscal issues, even as Treasury yields drop.
Risks are pointing overwhelmingly to the downside here, and if major central banks fail to react, the trouble will only grow. The British riots could point to similar risks in other European and U.S. cities as cuts start to bite. Record food prices will hit the world's poorest hardest, raising the risk of riots, export bans, foreign-owned farmland expropriation and further price spikes.
Free market economists would probably argue that governments have intervened in economies many times, espesially over the past several years, to protect established market participants, such as large businesses, systemic banks, pensioners and social weak. Much of these gains have come at the expense of market dynamics, which has translated into stagnation, unemployment, and deficits leading to austerity. Social unrest is the cost of these trade-offs.
I would love to hear your opinion on this issue and the broader implications of these events into the business life.
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Replies
Dear Boris,
The concurrent political crisis which we see now at many areas/countries of the world are totally unprecedented. Should the businesses act to cut costs, employment or shrink production/output in order to secure profit, an aggregate impact towards the world economy would end up with a severe depression everywhere. What the businesses can do in such situation, I believe, would be to keep on employment and carry on output stubbornly all the way until one would find lights on the horizon. You might well loose all your profit, yet, you would otherwise loose everything.
Hideo Suzuki
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