Friday, 20 November 2009

Recovery Doubts

(The Green-Shoot Worm And The Abracadabra Herd)

It is almost as interesting to follow the way the commentators of the global economy keep moving in odd herds, as it is to watch this wannabe recovery itself. A few days before the meltdown most of the people -- now famously -- thought things would be just fine. Then suddenly the lightning struck and the entire herd changed direction. But it turned out that in policy we believed. The herd changed direction again. Then a lull. Then lightning again. Etc etc etc. My favourite bit in this is the lull. You feel that another rampage is going to happen, you already can smell the change in the air.  But, usually you have no idea which way the herd is going to go.

From the end of spring, we have been wondering whether the recovery was really there. We, The Herd, convinced ourselves that this is going to be a short trough. Perhaps a deep, but definitely short one we were telling ourselves.

Occasionally the herd turned south again and again, mostly rather not on news, but on the observation that if the picture we saw was in the frames of our macroeconomic models, then we would have to worry a lot. Fortunately, we could always remind ourselves that the crisis proved that none of our models had anything to do with reality, and hence unconstrained optimism always won the day.

Now consider the comparison between the current “post a crisis” rally, and other similar one in 27 years ago. Although, it is only concerning the US markets, the table is a vivid illustration of how we are in a very different trouble. The past behaviour of any national economy during recovery from their respective crises is not going to tell us much.

It may be added, that this crisis was the first known truly global crisis. Although there were some economies less impacted than others (Poland, Brazil, Indonesia seem to have benefited nicely), all countries were affected in a significant way. As this blog has pointed it out before, we do not exactly have a model of the global economy anywhere near the quality of macroeconomic models. (And -- khm -- the public's trust in the latter is somewhat ... whatstheword, whatstheword, er, er... ah! disappeared without traces.)

And thus the only hope left is hope itself. (Oh, poetry!) If everybody gets excited about how amazing the future is going to be, by definition the future is going to be great. Square that, you rational expectations theory... (Imagine, along these lines, we could want an Anything!)

Which takes us to these wonderful green shoots that have been popping up Absolutely Everywhere. Consider the following graph (from the St Louis Fed's research page) :

That little wormy thing on the bottom right is the green shoot...

Or look at the retail spending dynamics in Europe (figure 2 in the Eurostat's Recession in the EU: its impact on retail trade). While the overall picture of the European economy is turning much less negative than the abyss looked, hunger for consumption is not exactly here.

It seems that the economic abracadabra herd is just about to go on a rampage on how long the to real recovery will take. This will get really boring after a while...

Monday, 16 November 2009

Copenhagen, Barack Obama, and Global Economics

"Obama damps hopes for final treaty on climate change at Copenhagen"


The week starts with yet more global procrastination.

This blog has had a critical, but hopeful attitude towards Barack Obama's global policies. The global economics observation that the 2007-2009 crisis was an evidence of the failure of pre-existing institutions led to the expectation of a global economic policy framework emerging in earnest. (The view of this blog is that what we have seen so far as recovery is the result of a set of random policy measures, mere stabs in the dark. And in any case, the jury is still out on whether there really is a recovery out there.) Thus the obvious need for global economic policy institutions accompanied the even more obvious need for global environmental institutions.

It shouldn’t have been a far fetched assumption that the newly elected global-citizen-looking, not exactly ignorant US president would be a good candidate to lead the way. This weekend’s disappointing news about scaling down the Copenhagen ambition is the latest reminder of his failure to match these expectations.

The sad truth is that the carbon, or in general the global warming trouble is the easy problem. Or, at least, it should be. In the case of the carbon imbalance, we seem to understand what goes on. We know what should be done, and it would be our global leaders' job to sort the burden sharing out. Clearly, they are failing.

This is very bad news for the global problems that have much less straightforward solutions than the carbon trouble. The easier of these will be the future economic instability. For even if the price of the current inaction will be a trough way deeper than what we have seen now, the effect will be only temporary. Not so in the case of the global ecological crisis. By the time the human societies will be impacted enough to register the catastrophe, the long term damage will be done and irreversible. If the global society is unable to sort out such a -- relatively -- clear cut problem as carbon emissions, there is no hope for the more complicated and less understood dangers.

Barack Obama commented that

"we should not make the perfect the enemy of the good"

Which is a good soundbite. The trouble is that the truthful sentence should have been something like this: by scaling down the Copenhagen agreement we might manage not to make the barely-acceptable-already-far-too-late measure the enemy of the disastrous inaction.

Friday, 6 November 2009

The Honey Trap

(Notes from the Papuan Highlands, from about a year ago)

Imagine that globalisation had turned out differently. It had been not European cultures that somehow got spread and dominated the world, in fact created the ‘world’, but it would have come from the other end of the massive Eurasian continent. Imagine that Augustus, Kepler, Darwin, John von Neumann were actually Papuan highlanders, from New Guinea. Imagine that Papuan armies colonised much of the Globe, then turned them into subordinated states. Then left them, and coerced all into a global economic project.

Then imagine that some Papuan guys would have realised that there were tiny little parts of the world that are still left ‘untouched’. Say, a place called Oxford. Imagine then that they would set up a global institution that would aim to help the ‘poor’. A concept very much defined in their global, that is, Papuan culture and framework. Then imagine that this global help-the-poor organisation was to decide to elevate the people of Oxford from utter poverty. “You know, there 80% of the people are under the poverty line.” Thus a bunch of Papuan gals and guys would descend on the unsuspecting population of our land. What would we think?

In other words: who the hell are we even to attempt to provide a ‘strategic vision’ for the people of Papua?

The Western goodies, like metal axe, machetes, mobile phones, new crops, as well as the occasional electricity and satellite antenna connected television sets are as much a draw here as anywhere else. But, they are real honey traps. They come with the bible, with pressure to get ‘civilised’, dress up, as well as alcohol, drugs, and HIV.

And it is all internalised. “You know, our people here are very poor. They are still running around naked.” (Which in itself ignores the fact, that people here have never actually been naked, just had different, and often much smaller clothing items. But they can be beautiful and very sophisticated. These words are of course for our consumption only. What a dismal line of Westerners must have come before us!)

Five decades of being told off for their own heritage, as rich as any other in the world, and unique in every sense of the word, have led to a desperate attempt to assimilate. We have seen gold painted, enormous glass coffee tables with Roman motifs on them: huge pieces of inadequate furniture that had to be flown into the Highlands as there are no roads leading in. Wasting precious resources and flight space. We are fed melons, watermelons, rice, and chicken. Hardly indigenous food here. While not once have we been given sweet potatoes, the Highland staple. (On one occasion, our lunch, in the very middle of the Highlands was flown-in especially from the coast, in fast food like packets!) Most of the new buildings try to imitate western styles or other, wealthier parts of Indonesia. There is hardly any architectural reference among the housing of the well-to-do to the local heritage.

In other words, our cultural intrusion is screwing up a 45,000 year old society; or more precisely, a system of small societies. (There really are 253 languages for some 2.5 million people.) An now we will bring more roads, and ports, and airports, and a lot of hydro plants, and electrical grid, and water supply.

Which takes me back to a previous point. Who the hell are we to do this?

What is the justification for us to think about the “place of the Papuan society in the global economy”? Our intellectual toolbox is very much the product of the European cultures. Economics, is a western society-management engineering discipline, that is coming from, with its assumptions, questions-to-be-answered, and methodology, from West European socio-economic systems. Our values that we project onto the ‘objectives’ of economic development are themselves of European origin, even if in that case the net goes a little bit wider.

Opposed to that, the de facto European-in-origin global culture split from what is now Papuan Highlander, maybe around 40-50 millennia ago. There was no intermingling whatsoever until 1956.

I probably should have stayed at home, and let others do the destruction. In my value system, you don’t screw up others’ cultures. Unless you haven an excuse.

So I made up one: global impact community.