Of ladders, snakes and silly games played in our name

There is such a thing as the law of unintended consequences. I was reminded of it only the other day.

I was two rungs onto a ladder, heading for the attic. Owing partly to a spongy carpet, partly to my inattention, the contraption went sideways, and I hammered against the stairwell wall, somewhat below where I had originally been. It was an exaggerated fall, like something out of a silent movie. Except I can report it wasn't an experience silently received.

At that moment, I didn't have a lot of time to ponder it as a small instance of the said phenomenon.

But we all have plenty of time to consider the bigger picture, of how attempted progress often leads to manifest deterioration. The tension between economic development and protecting the environment is an obvious example of the clash between what might be called the ‘quantity' and ‘quality' of life.

Perhaps the deleterious effects of engaging with a stepladder aren't actually the clearest case, but, hey, from little acorns of meditation large trees of knowledge can grow. Not necessarily here, I hasten to add.

Some gripe about companies (yes, they do). Coming from the West, it's always struck me, though, that there is no problem that governments in particular can't make worse, whether through self-serving cynicism or sheer ineptitude. There, I've said it. I tend to regard governments typically as actors in the piece, with potentially negative connotations, rather than necessarily benevolent and omniscient agents of positive change.

So, as you've guessed, I don't blame capitalism for the financial crisis, but rather those whose privileged responsibility it is to regulate it. And now that so many governments are agonising between applying austerity and supercharging stimulus, the irony that it's the poor who suffer unduly when the state fosters boom then bust seems unavoidable.

That's to say that on the way up the comparatively rich benefit disproportionately from rampaging stock and property markets, as a simple function of the capital originally invested. On the way down, as in the current period of economic retrenchment, it's the same cohort who benefit from the authorities' efforts to maintain the wealth effect.

Confronting the costs

Meanwhile, the humble taxpayer who just gets by is confronted with not only a ballooning bailout bill, but the ongoing costs of holding only cash with interest rates sub-zero in real terms.

That the whole financial crisis originated in the sub-prime segment of the real estate market in the US, where lenders were instructed to spread home-ownership by relaxing personal credit rating standards, is just about as classic example of unintended consequences as you could imagine.

Accompanying, prolonged low interest rates not only helped build a house of cards but created the incentive for banks and savers alike to go looking for anything that might generate a decent yield, inviting systemic risks.

Exotically structured products were the (dare I say unfortunate?) result. They tend to require expensive intermediaries and slick salesmen for their distribution, which takes quite an edge off whatever performance is achieved. The portfolio management industry may make a nice turn, but the man or woman in the street doesn't know what to make of it, and remains vulnerable.

Now that the so-called developed world is stuck with low interest rates, the quest for acceptable returns makes investment necessary, but equally downright dangerous.

Another stark example of the road to hell being paved with supposedly good intentions would be the Eurozone right now, also dominating business headlines. Did any of the EU's other members mean for Germany to acquire even greater regional dominance than when it lived by the D-Mark?

Now that its famed efficiencies and work ethic have overcome the deliberate handicap of an overvalued conversion rate (at the time of the euro's instigation), those other countries with a somewhat different cultural heritage are now locked in competitive disadvantage, from which there is effectively no means of escape.

Germany, itself aided now by an undervalued currency relative to its own success, is dictating harsh terms to the failures on the periphery.

Thus has a system born of the ‘snake' of tied currencies spawned a hydra-like monster of dilemmas. The Greeks would be able to tell you both the modern and ancient versions of that fable.

Roughly in the same connection, from my point of view it was a gratifying surprise to discover that, of all the countries in the world agreeing (in an Edelman study) with Milton Friedman's dictum that companies serve society by making profits, and by nothing else, the UAE came top.

The implication, that governments do better to allow laissez-faire, might have taken a severe knock here in recent years.

Well, you could have knocked me down with a feather. But then anecdotal evidence suggests that I don't need much help in falling down.