Payday 12 December 2001

Pic of the day: We all have our interests. But some have their interests cut. (Random picture from The Sims Hot Date, which reflects the new Norwegian lifestyle all too well. Except Sims don't have credit cards.)

Interest rates

Not only has the American central bank, the Fed, lowered its interest rates again. (11^th time this year, I think.) Also the central bank here in Norway has finally given up and is lowering the interest rate by 0.5 pp. It's all over the news, celebrated like it's some kind of Xmas gift. Hmm.

Personally I don't profit from it. I have, usually, more money in the bank than I have loans. I suppose there must be a lot of other people like this too, otherwise where would all that money in the banks come from? Well, some of it may come from the central bank of course. But by and large, I think banks are supposed to have at least as much deposits as they have loans. I know many of the people who have money in the bank are pensioners, so they are probably not counted as very important by the media. But you'd think there would be some others too.

Even so, it's not like I live off my wealth or anything. It's just small fry anyway. So I rejoice with the glad, in this case because I think the economy will need a little push. Actually, here in Norway we have two ways to push the economy. We could lower the interest rates, or we could pump more of the petrol fund into the economy. The effect would be a bit different, but in both cases the economy would heat up. In fact, the reason we have one of the world's highest real interest rates (if not the highest) is that we've done just this for a while. Channeled oil money into the economy, by financing a large public sector without raising taxes to the same extent. (Norwegian taxes were around the median of OECD countries last I saw. Other Nordic countries, with a similar or slightly smaller public sector, have far higher taxes on earnings and business profits, and at least Sweden and Denmark even have higher sales taxes.)

***

So does the Norwegian economy need this stimulus? Not now, quite the opposite. Consumer confidence remains far higher than in other developed countries. Investment in industry may be sliding, but private shopping and borrowing remain high, despite the lucrative interest rates for saving that we have had for a while now. The stock market has slumped along with the rest of Europe, in the shadow of the American downturn; but property prices remain high. The labor market is tight, and workers prepare for a wage feast this coming spring; the demands that are bandied about seem in some instances to be beyond any rational thought. Then again, the CEOs and board members, not to mention politicians, have awarded themselves big fat salary increases and bonuses and golden parachutes for years now, racing far ahead of the workers. (Not that the workers have slid down into poverty exactly, either. They have also had some golden years, just not to the same insane degree.)

Why then throw fuel on the overheated economy? Because you can't steer a country like you do a small speed boat. You have to steer it like a supertanker as big as the country itself. From you take your foot off the speeder, it may take a year or more to slow down. And from you hit the iron again, it may take a new year to pick up speed. The interest rate cuts now are to take effect next summer or thereabouts. By then things may have changed radically.

Evidently the Bank of Norway share my view on the world economy. The way I see it, the world economy has only one engine, the USA, and it is currently stalling. There is another engine catching up from behind, China. But nobody knows whether it will help push the train or just crash into it in a bloody disaster. What we have seen, however, is that the much praised European Union turned out to be just another passenger wagon. Just because you weld together a lot of wagons doesn't mean they become an engine. Once the USA slowed down, the European economic growth was suddenly gone too. Even though Euroland has a larger economy than the USA, and an even larger population. Oh well. That which is absent, cannot be counted on, as the old saying goes.

And the strikes this coming spring and summer are not going to help the Norwegian economy. I would dearly like the full impact of the world recession to finally hit Norway this coming spring, rather than any other time. There is nothing quite like workers going out in a long, bold strike, and then open the paper to find that their workplace is gone. You don't need this to happen everywhere. A few examples making the headlines would do wonders. (Of course this still leaves the public sector, in which some of the wildest claims are building up. Still, an atmosphere of deep recession can cool a lot of hot heads.)

***

How pathetic is that, writing yet another entry about social economy? At least there must be some English speakers who think like me, since they have the same word for interest and interest. In Norwegian, the word "interesse" is only used about things that capture people's minds. It is only in a few of us that these interests actually coincide, and then only occasionally. -As you may have noticed, I have other interests too. More about them another time, I hope.