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The 7 Most Misguided Growth-Killing Government Decisions of 2012


The European crisis, American inaction, Japanese inflation, and more.

4. The whole world didn't do anything about climate change. The World Bank has released a new report on what would happen if average temperatures rose four degrees Celsius. Answer? It would be really bad, with droughts impairing food supplies and economic activity, flooding destroying coastal cities, and spreading disease. Another report, from the International Energy Agency, predicts that if a global carbon emissions regime isn't instituted by 2017, a two degrees Celsius increase in climate change will be locked in. So what has the world done? Talked about talking about a deal…in 2015. To be sure, the US and the EU have both reduced carbon emissions in recent years, through a combination of policy and shifting economic trends, but without worldwide action, there's going to be trouble down the line.

5. The United Kingdom kept austerity alive. Prime Minister David Cameron's government has remained dead set on cutting for growth, even as the evidence piles up that cutting spending hasn't reduced their country's debt load. The Bank of England also chose to end its bond-buying program earlier than expected, standing pat on monetary policy at a time when easing is probably needed to backstop the costs of all that fiscal consolidation.

6. The Bank of Japan tolerated deflation. Think about this fact: Japan's economy today is four percent smaller now than it was in 1994. The cause? Deflation, and the Bank of Japan's unwillingness to pursue a commitment to a monetary policy that would allow it to shed some of its high debt and create better prospects for growth. While the BOJ has dithered, the Bank of Canada, US Federal Reserve, the Bank of Switzerland and the European Central Bank have adopted policies to stimulate their countries' economies. The good news here is that Japan's newly elected Prime Minister, Shinzo Abe, has promised to pressure the BOJ to lift the country out of its doldrums.

7. Argentina fought with the world's investors. Under President Cristina Fernandez, Argentina has picked a number of fights with global investors that will make it harder for the country to achieve its aspirations. While the ongoing fight with its holdout creditors from its 2001 default hasn't painted any of the players in a flattering light, the primary consequence has been to push off Argentina's return to the global money markets and stretch its foreign financial reserves. Even more problematically, the country nationalized its largest oil company, previously owned by private investors in Spain, Argentina's largest foreign investor. While the move may bring short-term benefits, the problems of relying on a national oil industry can be seen in Hugo Chavez' troubled Venezuela, and it contributes to a pattern of behavior that will make investors quite leery of coming ashore in Buenos Aires.

Oh, and then there's the US fiscal cliff. It hasn't happened yet, and officials are optimistic that a deal will be reached to avoid what would be the biggest unforced error of 2012, a massive austerity policy imposed on an economy that doesn't need it. If the US does hike taxes and slash spending as scheduled on Jan 1. without alleviating the effects within weeks, the country will go into a recession, diminishing the global outlook for growth.

What did we miss? Tweet your nominations for worst economic policy decisions to @quartznews and @timfernholz.

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