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Getting the economic priorities straight

With the stock market losing 40 percent of its value and investors in a panic, the media are in a frenzy and the country is in a state of confusion.

Amid all this, President Ma Ying-jeou’s (馬英九) administration, not knowing what to do, is proposing careless countermeasures.

The government is mistaking the stock market for the economy, making it more likely that everything will unravel.

The stock market reflects the ability of shareholders to make money; it is not a sign of how high or how low unemployment rates or salaries are in the economy.

In addition, not every profitable company is traded on the stock market, so a stock market index only reflects the ability of some companies to make money.

Furthermore, the profit-seeking activities of a listed company are not restricted to the country where it is listed, and may not even have an economic relationship with that country other than the stock market listing.

International factors affect the ability of a company to make a profit, and those factors also affect that company’s share price.

This means that Taiwan’s stock price index is one of many economic benchmarks or indicators.

The government’s economic function is to promote growth and fairness, while its punitive function is to prevent economic disaster and prevent crises in the financial system.

Market intervention is only legitimate in these contexts.

The Ma administration is not qualified to review the efficiency and legitimacy of measures to rescue the economy.

Of the six measures proposed on Tuesday and the earlier measures cutting the securities transaction tax by 50 percent for six months and reducing the deposit reserve ratio, only the central bank’s actions — reducing the required deposit reserve ratio and helping companies extend loan repayments due by March for six months — have any relevance to saving the economy and stabilizing the financial system. All the others are simply market interventions that do nothing to help the economy.

Neither theory nor experience allows anyone to sensibly predict that cutting the securities transaction tax in half is beneficial to the economy and the stock market, nor is stock market intervention by the National Stabilization Fund appropriate.

The National Stabilization Fund’s use of public funds to buy selected shares is devoid of transparency.

In addition to wasting these funds, this decision also raises questions about free market intervention, conflicts of interest and the eventual benefit for small investors.

The government wants to boost the economy, but there is more to this responsibility than handling the current financial crisis.

It should spend less time thinking about bridges between Kinmen and Xiamen in China and think more about repairing dangerous bridges and other infrastructure back home to facilitate economic activity and safeguard personal safety and assets.

It should pay more attention to food safety so that the public is less exposed to toxic products and that we can buy the food that we always have.

It should also stop exporting Taiwanese capital to China and reduce public unease.

Once public confidence is restored — even in the current financial turmoil — straightforward, normal economic activity will continue as better times approach.



Lin Chia is an independent commentator and holds a doctorate in economics.

TRANSLATED BY PERRY SVENSSON
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