Daily political economy! (1)

Quite an extraordinary announcement of Swedish government that it will not bail out the ailing Saab, one of the iconic brands of Sweden. The so-called Swedish model to deal with the crisis in banking section by nationalizing banks, recapitalizing and selling them is treated somehow as a beacon in the US, but its right leaning government certainly doesn't want to interfere too much the market economy. NYT reports, 

'Swedish officials have condemned what they see as protectionism by other European countries that have pledged to prop up their own failing car industries. They have also been scathing about General Motors, Saab’s owner, and the last thing they want is to seem to be bailing out a despised foreign company. '

Meanwhile, the current practice of GM and Chrysler sounds not so healthy as one of FT's comments questions, 

'It is one thing for companies to cut prices and suffer the consequences when they and their competitors are all playing by the same rules. It is quite another when the businesses in question are being kept alive with public money – $17.4bn between GM and Chrysler so far, with much more to come.'

Concerns about globalization and free trade has been raised up again, we all need to be cautious about the trend of protectionism.

“The U.S. is in such great danger of backing away from free trade,” said Kenneth S. Rogoff, a professor of economics at Harvard. “The next two years could be a disaster for free trade.”- quoted from this report. 

On the issue of regulation, while Obama's stand is still mischievous, European leaders have agreed to be pro-regulation either at the pan-European level and at the G20 level. 

'Gordon Brown, UK prime minister, agreed that a stronger system of pan-European financial regulation, based on the report of Jacques de Larosière, the former IMF managing director, be set up. The Europeans will also back action at the G20 level on regulation of systemic risks from hedge funds, private equity and alternative investment vehicles, and closer regulation of credit rating agencies.' -- FT editorial 

The repercussion of AIG case is still on, as Clive Crook of FT laments on the seemingly unconstitutional law the House of Representatives passed to void bonus,

'The US president has vacillated between stoking the outcry and trying to calm people down. He should have condemned the House’s bill of attainder. If his financial repairs are to succeed, the president must foster a more calculating, less self-destructive mood. Regardless, AIG should remain at the front of the government’s mind as it considers longer-term regulatory reform.'

Are you optimistic about such a regulatory reform? 

ECB should do more, Wolfgang Münchau appeals again, 

'As European leaders focus on tax havens and hedge funds, it is hard to detect a sense of urgency in dealing with the wider crisis. They seem to think that they did enough last October, when they issued blanket guarantees on bank debt and offered voluntary recapitalisation schemes.'

On what actions ECB should be taking, he prefers buying up the underpriced bonds of various Eurozone governments to quantitative easing. In another appeal on the demand side, Kermal Dervis argues that  

'Two things need to happen for demand expansion – driven in the past by asset bubbles and US consumers – to resume, but in a more sustainable fashion. In the immediate future, current account surplus countries, including Germany and Japan but led by China, must play a greater role in the expansion of demand. In the longer term, the distribution of income inside countries and worldwide must shift towards less concentration at the top, supporting a broad-based expansion in consumer demand.'

Sounds like a cliche now, the problem is that changing the living pattern of Germany, Japan and China is really a long term issue. It's a cultural issue, instead of economic issue. The change probably can be nudged to some extent, but certainly can not be engineered.