THE EDITOR: Since the announcement that the Petrotrin refinery will be closed, many people have been offering financial advice. Unfortunately, the premises of these people, including some economists, reveal their ignorance of basic economic principles.
Much of their advice, for example, is based on government intervention in Petrotrin specifically and in the economy more generally. But all such intervention does is skew the market forces which can correct the situation that state involvement created in the first place.
For example, one UWI economist recommends that fired Petrotrin workers be given “preferential access and superior credit terms” to open their own businesses.
But his premise here is that the banks’ normal loans criteria, which are based on estimating risk, should be abandoned. Since this won’t happen, then such terms can only be given if the Government offers to be guarantor for these workers, which creates a moral hazard, which brings us full circle to the factors which created the Petrotrin failure in the first place.
Many other recommendations centre around government funding to stimulate economic activity. But this Keynesian perspective makes the large assumption that bureaucrats understand finance better than business people.
This approach also ignores the fact, proven by the track record, that asking government to disburse monies to people always leads to corruption since friends and family will be favoured. And this is also full circle, since corruption and cronyism undermined Petrotrin as it does all state enterprises.
Most fundamentally, when the State directs funds into commercial activities, it takes away resources that market forces might use in more productive activities, according to the judgment of entrepreneurs.
Unfortunately, many commentators seem to be in the thrall of Keynes, who famously noted that “practical men who believe themselves to be quite exempt from any intellectual influence are usually the slaves of some defunct economist.”
ELTON SINGH, Couva