by Ali Nadeem
Amidst all the talks, the rants, invective discussions between the right and the left, there is no doubt that free markets still remain a much sought after solution for economic stagnation.
In the US, monetary policy and quantitative easing hasn’t worked as expected. Interest rates are at an all-time low, economic and business activity is sluggish and consumer confidence is low. Meanwhile, businesses are sitting on piles of cash but are unwilling to spend because of mixed messages sent out by the federal reserve. There are sour relations between Wall Street and Washington, and the new devil called “Fiscal Cliff.”Apparently both the Republicans and Democrats averted this impending economic catastrophe that has yet to be resolved.
Across the ocean, on the other side, Europe has its own mess to deal with; Italy, Greece and Spain are in turmoil. What about the UK? Are the Brits even staying in the EU? Well, they are having that debate these days. Outgoing Italian Prime Mario Monti did a reasonably good job in terms of managing Italy’s financial and economic fiasco, and not letting it get completely out of control. What about Greece? Well they are still in trouble. Spain? Well, there is rampant speculation that various provinces and states within Spain may not have enough cash to pay their debt obligations, and if that happens, these regional entities will ask the central government for help, which as we all know, is already pretty darn broke! Now, let’s talk about Japan, the “lost decade” of the 80’s has turned into “lost decades”, ongoing since the early 80’s!
So what can we do? Well there is still hope and there is light at the end of the tunnel. The solution is to liberalize the economy and trade, even more so than has been done in the past. A recent article in the Economist specifically mentions three trade agreements which could potentially stimulate economic growth in US, UK, Japan and EU; Trans-Pacific Partnership (TPP), Atlantic Free Trade Agreement between America and the EU, and a single services market within Europe. According to the article, TPP could raise the regions GDP by more than 1 %, especially if Japan were to join (countries already in negotiation are US, Canada, Mexico, Australia, New Zealand and South Korea),Transatlantic free trade agreement between US and Europe could increase Europe’s GDP by 0.4% and increase US’s GDP by a percentage point. The article also mentions the tremendous opportunity in the services sector in EU, which makes up more than 70% of the regions GDP; the services sector’s current custom and other costs add 40% to goods that are shipped within the EU by sea. Dismantling some of thes, if not all, could grow EU’s GDP by at least 2.5%. According to the article most of these could be achieved by getting rid of some tariffs and harmonizing regulatory standards; better economic results could be accomplished by cutting more red tape, getting down more barriers, tariffs and subsidies, and harmonizing even more regulations between the regions.
Can all this be done? Of course it can, politicians need to spend less time on kissing babies, smiling for cameras, attending cock tail parties, and spend more time working and negotiating these treaties so that these trade agreements are transparent, inclusive of all relevant regions, countries and industries, and most of all can bring economic prosperity to the part of the world that has been economically slow or stagnant for some time now.