Raw market forces correcting economic imbalances?

photo credit: BinaryApe

An interesting post over at the Economics Help Blog sheds some light on some of the economic imbalances that occur in the world today, such as a tendancy towards having high savings in the East, with high consumption in the West; and having a current account surplus in the East, but current account decificts in the West.

Tejvan Richard Pettinger argues that the current recession is, to an extent, addresing some of these imbalances through sheer market forces. He writes the following:-

The Recession is Having the following effect.

• Lower spending in US and UK. Both UK and US had very low saving rates at the end of the boom. Recessions tend to encourage people to save. On the other hand, China may be forced to encourage domestic consumption. They can no longer just rely on exports to maintain high growth rates. With external demand falling, there is greater pressure on them to boost domestic spending to take the slack.
• Lower Current account deficit. The US current account deficit has fallen from a peak of about 6.5% of GDP to about 3.3% of GDP This reflects the decline in US imports.
• Change in Attitudes. After the boom years, people in US are more suspicious of spending on credit. In the medium term or long term, we may see US consumers becoming more frugal and more willing to save. This will help to reduce the global saving imbalances between East and West.

This is an interesting thought,  and maybe one that is not very popular at the moment with a global reaction against capitalism, and more specifically, market forces.  All in all, capitalism has its weaknesses – I think that we are learning that at the moment, and its a lessons that we are learning at great cost given the excesses that have caused this crisis, and the massive deleaveraging that is happening in the global economy at the moment.  At the end of it all, however, capitalism is the only system that works, because it is the only economic system that creates wealth.  The alternatives have already been tried and have been found wanting.

The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries. – Winston Churchill

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