How social mood interacts with economic policy

Social mood is the soil in which the future economy and society will grow, and policies can amplify the social mood or counteract it. In the case of central bankers, they are following the Japan model and their policies are just one step in the process of a very long decline. Here's an example from Hong Kong.

The disease that's killing HK's entrepreneurs

The city has always been a haven for speculators, but recent economic conditions such as negative real interest rates have made it even more attractive to become involved in short-term speculation. This, some experts say, is done at the expense of entrepreneurship. And that may be killing the very spirit that makes our city vibrant and successful, warns Paul Zimmerman, chief executive of Designing Hong Kong.

"What is the cost of [business] experimentation in Hong Kong?" asked Zimmerman, who last month was elected a district councillor representing Pok Fu Lam.

"Who can afford the rent and living costs and experiment with research, creativity, arts or trying out a new business? Moreover, we have abandoned the diverse street [model] owned by many different landlords each with a small plot and street frontage and replaced it with podium structures owned by one person (or a consortium) and under one `retail management strategy'.

"Rather than opportunities to start a small shop, the only job available is as a 7-Eleven cashier. Hong Kong's planning and lands policy is like a set of weights tied around the neck of a population thrown overboard in shark-infested water."

Entrepreneurship matters in Hong Kong because small and medium businesses account for about 98 per cent of local companies and employ about 1.2 million out of a workforce 3.66 million. It is the ultimate factor in revitalising the city.

Yet many people opt to invest in stocks, property and other risky assets as a way to increase their wealth, especially in times of ultra-low interest rates. Such speculation may be "safer" than committing capital and ideas to starting a business, because if a business goes under, the loss is likely to be total. Compare this with a stock or property market crash, where the stocks of a solid company or a flat still retain substantial value.
An economy cannot "make up" lost business starts. Entrepreneurs learn from the process of building a business and even if business starts make up for the past, the economy will still be at a lower level of output because the businesses will be at earlier stages of development.

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