Is anyone to blame for the crisis?
Economists are not moralists. I don’t want to point the finger at excessive greed or swindlers or claim that the regulators failed. That doesn’t tell the whole story. There have been and always will be financial crises. The entire financial market had simply become so big and complicated with different investment products that those responsible could no longer see the bigger picture. The financial crisis then became a banking crisis and that is the biggest problem now. If it had just been a matter of a lack of liquidity, the central banks could have solved the problem. But the banks took a hit to their assets. They had no money left and had to be recapitalised. In this case, there is also a shortage of private investors. This is why some banks went under and others had to be rescued by the government.
What do you think of government programmes to stimulate the economy?
I doubt whether they help much. By the time they have been finalised, it’s often too late. Unfortunately. And what they are actually used for is a key point. If they are invested in long-term infrastructure, that’s okay. However, economic programmes are a dream come true for powerful interest groups. They can finally get their pet projects, which have previously been rejected as uneconomical, financed or at least subsidised by the state. I don’t believe in investing in social or ecological romanticism.
State intervention primarily aims to save jobs. Isn’t that a strong argument for it?
No, otherwise we should have saved the stagecoach as well. The American stock exchange was founded in 1896. Of the founding companies, only General Electric still exists. Big companies will always disappear, like the airlines Pan American and Transworld Airlines. And not just in the USA. The Austrian economist Joseph Schumpeter saw “creative destruction” as an opportunity. And Basel’s modern-day chemical multinationals emerged from the city’s silk-ribbon industry.
Why then does the financial sector deserve special treatment?
The collapse of the financial sector poses a threat to the system, which means the entire economy runs the risk of collapsing. But structural development mistakes are also made in the financial sector, as the UBS example shows. There is much to suggest that there should be a scaling-down process across the board. Care must be taken to ensure government fire-fighting measures do not hold back necessary restructuring in the medium term. With the benefit of hindsight, you have to ask whether UBS should have been scaled down immediately and whether it would have been better to sell off the investment business. But in the middle of the crisis that was no longer possible.
Friday, August 21, 2009
Great economic lessons by University of Basel's Professor Silvio Borner in this Swiss Review interview. I transcribe a few passages: