By John Newsome on 28th October 2010

In Oscar Wilde's 'The importance of being earnest', Lady Bracknell tells us "… to lose one parent may be regarded as a misfortune; to lose two looks like carelessness." Today, such bluntness would be called bullying and if done in the workplace, might give HR something to do for the entire week – or even longer. Of course, Wilde's character was referring, in a roundabout way, to the old adage that if we are wise, we will learn lessons from our mistakes.

Some mistakes are, plainly, less painful than others. Legend has it that George Best was entertaining Miss World in a luxurious hotel suite. The room was awash with empty champagne bottles and thousands of pounds of casino winnings. As he left the room, a waiter, who had just delivered more champagne and pocketed a generous tip, turned to Best and said, without a trace of irony, "George, where did it all go wrong."

Other mistakes, though, are harder to rectify. The credit crunch (and its origin) is being viewed as a nightmare that, while terrifying at the time, is now but a distant memory. Things were looking a bit sticky for a while but we can all, once again, hitch a ride on the something for nothing express. However, unlike George, who readily admitted he spent a fortune on cars, drink and women (the small amount remaining he just squandered), the economic mis-management by both government and individuals over the past decade is of a far greater magnitude. Which means the consequences will be greater, too.

To our eyes, there is an increasing dichotomy between what is happening in the real world and what is happening in securities markets. However, while in the near term, markets can deliver the returns their participants desire, the situation changes as we look further ahead. Eventually, markets don't confer the returns investors want; they deliver the returns investors deserve.

Politicians, economists et al are increasingly concerned that the plethora of economic stimuli will be withdrawn too soon and therefore risk the recovery. It's a dangerously naïve view of economics to believe that endless government spending is a panacea. The reality is that if the stimulus is not withdrawn, a combination of negative real interest rates and government indebtedness risk catastrophic hikes in long term borrowing costs. Keynesian economists seem to forget that wealth creation results from thrift and private sector risk taking. We suspect the American humorist P J O'Rourke was on the right track when he said "not being a liberal, I have very little grasp of things I know nothing about".

John Newsome can be contacted on:
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