Wednesday 13 August 2003

Pic of the day: I hope The Sims is right and cute women dig economy lectures ... But even if not, that won't stop me since I dig economy lectures, especially my own!

Interest interest

The Central Bank of Norway lowered signal interest rates by 1 percentage point today. That's a lot, although some had expected it. What's more, the bias is toward a further cut, possibly next month already.

The news were met with slight worry among economists, and delight among the borrowing classes. The bank found it necessary to release a warning to consumers to not borrow more than they could pay if rates should rise again. But to those with no economic education, this is very close to opening the prison doors wide and tell the inmates not to run farther than they can come back if they are called for.

We live in a society where excessive consumption is considered a virtue. The more we consume, the faster spin the wheels of our economy. More jobs and higher income for everyone, so we can continue to consume even more in the future. But we are riding a bicycle: We have to keep up the speed to not fall over. Indeed, it is worse: We have to keep accelerating.

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Compared to almost any other country, Norway has a rock solid economy. Despite the recent "surge" in unemployment, we are far better off than almost all EU countries, and even the USA. While others worry about their national debt, we worry about how to best invest our huge funds. It would be only reasonable then, if our currency was stronger than our trading partners'. This is the way in which currency markets help nations share their burdens: When one economy falters, interest rates are lowered and the currency sinks as well. This makes it easier to export and harder to import, cushioning the blow to the economy. The opposite is supposed to happen when a country is doing well.

But here in Norway, for some reason, low interest rates has become a goal. It is trumpeted loudly by the government as a source if great pride, rather than as a sign of weakness as it would look to an economist. It has even gone so far that a weak currency is held up as a goal. You know, that would be funny if this was a game and not real people. It is really, really easy to get a weak currency if that is what you crave. Just wreck the country's economy, and the weakness follows by itself.

I don't think these people are simple-minded, exactly. They probably understand things I did not even know exist, about wines and golf and proper conduct among the upper classes. But their understanding of currencies and interest seem to be, at best, interesting. And it occurs to me that if one of the world's most affluent countries is not willing to carry its own weight at the slightest little uphill, then we could lose more friends than pretty words can win us.