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Strategies & Market Trends : Asia Forum -- Ignore unavailable to you. Want to Upgrade?

To: Zeev Hed who wrote (395)	1/4/1998 8:49:00 AM
From: Geoff Nunn	Read Replies (1) \| Respond to of 9980

Zeev, let me respond to a few points. While it may be true that a social safety net helps to dampen economic downturns, it's not clear to me they are needed for that purpose. Downturns frequently result from misguided public policy. (e.g. Japan raising taxes last spring, the U.S. Congress enacting the Smoot-Halley Tarriff Act in 1930, the U.S FRB gunning the money supply in the 1970's, etc.) If a country steers clear of stupid policies, its recessions would be less severe. Hong Kong and Singapore have hardly any SSNet (especially HK) yet seem to be doing quite well in raising their living standards I have no facts concerning how well each has fared during recession. I do know that Singapore ranked #3 in the world and HK #4 in GDP per capita (after the U.S. and Switzerland) based on 1996 data. Pretty impressive when you consider the relative low points where they started. HK has no Social Security, no state provided medical ins., no minimum wage laws, no rent controls on private housing, and little if any public assistance. It does have a substantial public housing program, which is where most of the gov't budget goes. In terms of economic freedom HK prior to the mainland takeover was the freeest country in the world according to Milton Friedman. I'm not arguing against a social safety net but do believe it needs to be defended on the merits. It may not be a necessary condition for economic stability and it most certainly is not a sufficient condition. Argentina, which had one of the highest levels of GDP per capita in the world at the end of the 19th century, had in place an elaborate safety net for much of the 20th century. This did not provide stability, far from it. The country has been wracked with crises for most tof this century. It is the partial undoing of its welfare state by the current gov't that is finally bringing some long-sought stability. And, of course we all know how much good China's post WW-2 ssnet ("the iron rice bowl") did to prevent economic instability and famine in that country... which is to say, not much. <<Strangely enough, we actually need to have government bonds as a store of value (a good replacemnt for gold), otherwise, excess savings will have no place to "park" and will start to find its way to unproductive uses.>> Sorry, I don't follow this. Aren't things like houses, common stocks and corporate bonds stores of value? Excess savings in our economy often flow into the commercial banking system and other financial institutions. This financial system would be even larger than it is if the gov't reduced its borrowing. Moreover, if we reach the point that investments are yielding zero return at the margin, presumably excess savings would flow into overseas investments. Geoff