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Sunday, May 22, 2016

G7 The Benefits and Dangers of Coordinated Economy

Finance leaders from the G-7 met in Japan to discuss the global economy. Despite the slow down they have decided against coordinated actions to boost the global economy. There are a few good reasons for and against this decision. Coordination is not risk free and does carry a few dangers.

In a global world we should be able to coordinate our economies and prop up a slowing global market. The problem is that the economy runs its course as a large complex system that almost no one can control with any clarity. The more we artificially influence a system the higher the risk for potential backlash.

Consider companies that are protected against foreign competition for decades and then one day the country can no longer afford to protect them. The entire industry gets crushed by those who learned to adapt to the market. The same can be said for national economies.

Stimulus and market coordination can be beneficial in short-term situations but when relied on as a prime method of thwarting change risk begins to build up. The tidal wave of change can only be held back so long. If the global economy is going to improve then it must be a natural change.

Governments can make a difference. Instead of coordinated activities it is possible to create treaties and market infrastructure that makes it easier for economies to become more efficient by adjusting to each other easier. They can make it easier for nations to transfer materials and goods so efficiency raises prosperity across the board.

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