Nearly two decades of central bank financial repression have created huge distortions and imbalances in the world economy. Now they are coming home to roost as the impossibility of ZIRP forever dawns on even our mad money printers. Having created yet another round of ebullient financial bubbles, they are now getting palpably nervous.
Even the lady with the perpetual tan and unfailing call for “moar” monetary and fiscal stimulus, IMF head Christine Lagarde, said something sensible over the weekend:
“There is too little economic risk-taking, and too much financial risk-taking.”
She got the “too much financial risk-taking” part right, but here’s the thing. The apparatus of state policy—-fiscal borrowing and central bank money printing—-can not cause enterprise to flourish. Free market capitalism is the milieu in which business enterprise, invention, risk-taking and labor productivity thrive best. So, yes, reducing market impairments—such as tax rates on production and capital which are too high or regulations, protectionist laws and subsidies which are too onerous—-is always helpful.
