The Elusive “G” Factor – Part 1

[Economics in a Nutshell]

 

An Introduction

There is a conundrum here somewhere!  As a libertarian leaning Think Tank organization and publication, we instinctively know that more government interference in the economy and bigger government per se is not a good thing.  And so is sovereign debt and the servicing of that debt.  Both are drains on the economy and economic potential of any sovereign nation, yet both are necessary evils too.

But where lies the ‘sweet spot’ between the size of government, fiscal policy, sovereign debt (if necessary)?  The magic formula or ratio between the public and private sectors and their respective shares of the economic output pie?

These are questions the political and business leaders are struggling to understand and define in Europe and the USA at this point in time in order slowly and arduously drag their economies back to a ‘normal growth cycle’.

Economy
Economy (Photo credit: Donald Macleod)

Part of the challenge we believe is the massive imbalance created by the shifting nature and sources of production, combined with the rapid uptake of technology and the disruptive influences of technology.  Our planning cycles and hence levels of understanding and ability to adjust the factors of productions to keep up with these disruptive forces are being severely challenged.  Or maybe our grasp of the theory underpinning our economic models just aren’t up to coping with the rapid nature of change and forces of change in the global economy.

As has been argued in previous articles, by its very nature the instruments we utilise to adjust economic activity and output in specific geographical locations, namely fiscal (tax) and monetary policy, are very blunt instruments and not as effective and able to cope with the speed of change in given economies.  But are their any other mechanisms we can utilise to adjust unfavourable behaviours and activities in order to get back to equilibrium?

A further factor we believe is a lack of understanding of where exactly we are in the global economic adjustment life-cycle.  There is no real comprehensive understanding and agreement at best of these influences.  True mechanisms like the G8 now G20 have been created to address more global challenges, but there is hardly ever consensus and a collective will to act in unison to address the bottlenecks and imbalances in global economic activities.

With this introductory article we have laid out some of the areas to explore and bring back into the ‘light of scrutiny’ as part of a deeper understanding of the nature of our global economic state and status.

theMarketSoul © 2011

Economy
Economy (Photo credit: John H McCarthy)

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