Tough choices don't suit penguins ... or bankers

It's not only the penguins that have seen good news this year. The majority of the world's population is better off than it was a year ago, from farmers getting a decent price for their produce to those engaged across the world in the old-fashioned business of making things. Most of the billions who inhabit India and China, for example, are richer, some of them dramatically so.

As those contra-cyclical specialists at Bedlam Asset Management point out, there's a small minority who've had a horrible time. Some have the misfortune to be living in Burma, North Korea, Zimbabwe or Darfur, where despotic It's bust, so or crazy autocrats delight in inf licting misery on their populations. In the West, there's also an even smaller minority which is having a hard time, and which is trying its best to engage our sympathy.

Those in the financial services industry who have made vast sums from pushing pieces of paper ? or electronic information ? around have a feeling the game is up, and they'd rather it wasn't. Never mind that they (or their previous colleagues) have already banked the GNP of Darfur or North Korea into their personal accounts and have no intention of handing a cent back, they are losing money now and are looking for financial assistance.

Amazingly, they seem to be getting it, as the central banks pour ever greater sums into the money markets in their desperate attempts to bring down the cost of debt. The good news for our poor bankers, and the rest of us who support their lifestyles, is that the medicine seems to be working. The bad news is that the last time the authorities "recycled" money to stave off a recession, it unleashed inflation on an unprecedented scale.

Stephen Lewis, the wise old bird now roosting at Insinger de Beaufort, reminds us that after the first oil price shock in 1974, central banks in Britain, Germany and the US all cut interest rates. This was a disastrous mistake.

By August 1975, inflation in Britain had reached 26.9%, and it took a decade to bring it back below 5%. As Lewis says: "In the 20 years after the first oil shock, the cumulative loss of output, owing to the dampening effects of sustained high inflation on household and business confidence in the developed economies, almost certainly outweighed the short-term production gains secured as a result of 1974's easy money policies." Today's central banks are being invited to deal with the legacy of profligate governments. Instead of using the decade of falling goods prices resulting from the Chinese industrial revolution to modernise our infrastructure to meet their competitive threat, we have squandered it on health'n'safety, employee rights and extra state spending without reform.

It's clear that the era of ever-cheaper goods from China is coming to an end, and that inflation is again becoming a serious concern. This time it may not just be oil, but food as well, with the steady shrinkage of land under cultivation across the world coinciding with the buying power of all those newlyaffluent Indians and Chinese. In the end, the choice between a bit more inflation and a bit less economic growth is an illusion. Inviting the central banks, rather than governments, to make this choice is hardly better than inviting penguins to vote on global warming..