Policy of boom and bust
The major defaults of the economic system called “Market economy” or “Capitalism” is that it enabled on one hand to pour into the economy too much financial liquidity at times of boom and overheated economy, by investing too much money in wrong and too expensive assets, and on the other hand at times of bust, when the economy needs liquidity to sustain employment, the system is rather greedy with helping investments in the same or similar assets for even very reduced price. This system a-priory has to cause bust and boom, situations.
The economist since the great depression of 1929-1933 which had disastrous consequences learned from the lesson, and the governments and the central banks took as their major task in economy (and be the price whatever it takes), to act as anti bust and boom instrument. This is why they made the economic stimulus of trillions that saved the banks and financial system from total collapse (luckily the collapse came during the time of republican presidency and they couldn’t resist this decision), and the quantitative easing that poured liquidity of government money into the economy as alternative to the private money from banks who stopped to borrow.
So if it is so easy to solve the economic crisis situations, what is the problem? Let the economy run on the waves of bust and boom, and whenever the bust comes the government interferes, and at the times of booms let the boys play and enjoy themselves. If economics would be only about mathematical formulas, probably it could work, but the truth is all the economic decisions have their moral-political aspects. And here lies the problem. Because it is morally and politically very hard to neglect the principle of punish those who do wrong and give tribute to those who has done good. And this is actually what happens when the government comes to rescue the “credit boomers”, the bankers who created a distorted financial system, that channeled the financial and material resources to wrong places to invest in wrong assets, and when the D day came, they did not have to pay the price for their wrong doings. The same happened to those who took the loans, without to ask themselves if and when are they going to pay them back. These Financiers and their creditors, who get loans of other peoples’ money enjoy free lunch twice. Once when they give and get these loans with knowledge that it will never be repaid, and second time when they enjoy the debt reduction, when the governments come to rescue them.
On the other hand those who use the wealth generated at times of boom to accumulate reserves for the bad times have to pay twice. First time when they restrain their activities during the times of prosperity and reduce by it their profits, second time at times of bust, when still they have to fulfill all their obligations, and get no praise for their responsible behavior in the times of boom.
Of course this system of Boom and Bust causes with each wave a major shift of wealth from one sector to the other, and generally from the decent and responsible entrepreneurs to the irresponsible gamblers, who happen to make bid on other people’s money. This is one of the reasons why the pension systems are all in deficit, the wages stagnate why the profits and mainly the rewards of corporate managers of publicly traded companies surge.
Isn’t it just unfair?