Alex Floate, a member of our Emerging Fellows program examines the governments’ potency in leading finance futures through his fourth blog post. The views expressed are those of the author and not necessarily those of the APF or its other members.
Solving big problems has never evaded the human spirit. Ferocious tigers and bears led to spears and group tactics. Episodes of famine led to granaries for storing against future hunger. Following that came the domestication of the cat to protect against rodents feasting on the stockpiled bounty. In just the last century we have overcome distance with advances in communications, heavier than air flight, and even leaving earth’s atmosphere. As problems have become bigger in scale and cost, we look to our governments to take the lead on solving them. That we can solve big problems and overcome the constraints of our environment is not in doubt; that we have the will to do so is.
Continued financialization may create a dystopian-tinged future of financial feudalistic lords, while nationalistic oriented systems may reverse global gains and destroy the value of national currencies. Fortunately, neither future is set in stone and the opportunity to create a different one is possible, but dependent on current governments choosing a different direction and using the tools at their disposal. The mechanisms available include monetary policy for expanding and contracting money supply, fiscal policy to set taxing and spending priorities, and regulations on financial investment and exchange.
How should they deploy these mechanisms, and for what end? Should the government pursue a policy of continued economic growth, or one that favors renewing the social contract to favor all citizens? Should we create rewards for sustainability and disincentivize consumption? What system best emphasizes personal initiative and innovation, while caring for the least of us? Although this is a political exercise more than a financial one, the answer will determine which mechanisms are put forward as solutions.
If we decide that economic growth and consumption is not as important as sustainability of resources, then systems that favor labor and saving over those that promote investment churn and profit will be needed. However, just as this will call for increased taxes on investment and capital, higher taxes on consumption, which disproportionally affect the poorest, will also be required. Should we decide that social programs, especially in a possible future of large-scale human obsolescence, to ensure an economic floor for all citizens is vitally important, then investment and tax mechanisms will need to be balanced to provide revenue while maintaining risk incentives for growth of capital.
Before we can fully and rationally answer those questions as a society, the greater challenge is confronting the myths of both capitalism and socialism. Believing that free markets and privatization are always the best method for delivery of goods and services ignores that many needs are basic for life, and costs are not always inherent in the price. Conversely, believing that governments are always honest managers that efficiently gauge the needs and wants of their citizens and deliver accordingly is also not supported by history. The answer lies somewhere in between with a need for a new folklore and heroes to provide a basis for a future that tempers the worst of these extremes while balancing the best of them. The question to be answered is whether governments will work to balance these needs and forge a new story for the future, or abjectly acquiesce to the myths of the money changers.
© E Alex Floate 2019