Once again, the government rides to the rescue here.
That's good news for the people being rescued, but what possible ramifications
might it have more broadly? Yeah, I think, David, this is a great
time to step back and see as to how low the bar has become now for government
intervention, not because the banking sector is always a very sensitive sector
because of the risk of a contagion. But what strikes me here is that how far
we have come over the past few decades, where you get more and more stimulus,
more and more government intervention, and at the same time you have a slump in
productivity growth. And I think that this is the point that
is very underappreciated. At the surface.
It seems as if the economy has once again survived a crisis.
And here we are. But I think what we forget is that that
is a price we are paying for this, that because of this constant government
intervention, we're keeping alive a lot of zombie companies in this country.
And the number of startups, in fact, over time is going down.
So what why is this happening? This is happening because we're keeping
a lot of deadwood in the system. The number of zombie companies in
America today is nearly 20 percent of all companies can be classified as
zombie companies. That number needs to be barely 2 percent
in the 1980s or so. So that is the contradiction here, which
is that we do not want to have any pain and that's completely justified
and we want the government to come to the rescue.
But we also don't like the economic outcome.
We have low economic growth. Less and less living standards.
And that I trace back to the fact if you have low productivity, that's what you
will get. And the low productivity is the direct
consequence, I think, of such expansive government intervention.
So we're sure no question we've had a lot more government intervention, no
doubt about that. But there's another factor as well.
We've had very, very low interest rates, which has allowed some of those
so-called zombie companies, companies that basically can't afford for it to
service their own debt, survive as the Fed has moved to a higher interest rate
regime. Might that help some on the front of
zombie companies, the allocation of capital and therefore maybe ultimately
productivity? It could be, but so far there's
basically no evidence of it. Look at the differences.
You know, the default rates are so low in the country and ISE, you know that in
capitalism, having some default rates is a very essential part of it.
So this goes back to what sort of system do we want to the default rates in the
economy today are very low. Now, all this sounds almost a bit
masochistic. Do we want more being?
Do we want more companies to go bust? Well, if you want capitalism, that's
what you should be prepared for, because a capitalist economy should be a dynamic
economy where you have a much cleaner company creation.
You have a lot of that dead wood that dies.
And you don't have the creation of too many monopolies or very large companies
that benefit also from very low interest rates, as we know.
So I think that it's that contradiction that we can't seem to handle.
What we want and what's the outcome that we're getting Russia.
Do you think there might be a way to engineer this in such a way that you
take away the worst of the pain and yet you still have some discipline the
market? Let's let's take the example of Silicon
Valley Bank. To be sure, all the depositors were
guaranteed they were made safe. But the bondholders were wiped out.
The shareholders were wrapped up. Management was wiped out.
That's not exactly moral hazard, is it? But as I said, that looking at each
individual instance almost seems justified.
I'm looking at the cumulative effects here that if you had so much government
intervention, which is constantly at hand, then what are the consequences of
that? So each individual instance, it's very
hard to argue against because no one likes to see that kind of thing.
But what is it that we are seeing? We are seeing the size of government
stimulus over time, having increased massively.
If you look at each economic downturn, we have seen the size of monetary
stimulus increase a lot as we've seen every economic downturn and you've seen
less and less a difference because often the government's intervening also in a
non-monetary and non fiscal way like this sort of did just now.
So it puts us in a larger context. And it's not just the called bailout.
Don't call bailout, but whatever happened with Silicon Valley Bank, it's
not just that. At the same time, we're moving at least
stepping into the area of industrial policy with things like the Chips and
Science Act and federal government putting money into things like
semiconductors. Are we overall our society slowly, maybe
not even slowly moving away from a true free enterprise system to something
that's much more statist? Yes, I think that's what happened.
All the evidence suggests that look at the share of government in the total
economy that's keeps going up over time. The no major developed economy since the
1970s has ever run. In fiscal surplus, everyone's used to
now running only deficits because we think deficits don't matter.
And my point is that all these things do matter and an insidious that you're
undermining the fabric of capitalism, you're undermining the dynamism of
capitalism. And the result you have today is
something which is much closer to statism.
As you point out as well, I think it's correct.
After all, industrial policy is something VIX so associated with China
in the past. So I think that this is the big change
in America and the consensus out here that there's so much more that the
government is doing in every area. There's mission creep in the state as
well. In terms of what it's doing.
So that is my central point out here, which is that productivity growth in
America. If you look at the fact the productivity
growth is has fallen to just half a percent a year.
Now that number used to be 2 percent or more.
So that is the dramatic change that we seen.