The Other Crisis

When the economic storm had hit us, 10 weeks ago, we were all looking for parallels from the past. Are there similarities with the burst of the dot.com bubble, in 2001. This is really different here, we said. But there are general lessons, no? And we listed those. 

Then things turned worse, the storm became a crisis. We started to revisit, first the 1997-98 Asian / Russian / Brazilian crisis. "How different was that! This time it is going to, rather than coming from the emerging markets." We lingered around this thought for a couple of days. 

However, as the term 'bleak' started to become an insufficient adjective, we were increasing turning to the previous meltdowns. The lessons from 1992, and then 1988, and even 1981 suddenly looked very relevant. Then, we went even further back in time. The prospect of a worldwide economic contraction coupled with expensive commodities were always a brill cue for plunging into the oil price shocks of the 1970's.

As the previously unthinkable kept happening, the bad news did not stop flowing in, it was no more denial any more. The comparison must be with the 'biggest shock ever'. And thus, Great Depression historians suddenly see their business prospering (one of them even became Obama's top economic advisor). 

But why stop at the 20th century? Why not the 16th century's Spanish gold inflation? Or how about the Greeks, or the Romans? 

A friend of mine, Philip Kay will speak on the financial meltdown in the Republican Rome. This Friday, in Oxford. Rome 88 BC. The abstract of the talk, coming directly from Philip is as follows:

"In 66 B.C. the Roman orator, Cicero, delivered a speech, the De Imperio Cnaei Pompeii, in which he argued that Pompey the Great should be given the military command against Mithradates VI, king of Pontus, a kingdom on the Black Sea coast of modern Turkey. In the speech he reminds his audience of the disasters which befell them 22 years earlier in 88 B.C. when the same Mithradates invaded the Roman province of Asia (situated on the western coast of what is now modern Turkey). According to Cicero, this invasion caused the loss of so much Roman money that credit was destroyed at Rome itself. He says:

'For then, when very many people lost large fortunes in Asia, we know that there was a collapse of credit at Rome, because repayments were interrupted. It is indeed impossible for many individuals in a single state to lose their property and fortunes without involving still greater numbers in their ruin. Defend the Republic from this danger; and believe me when I tell you –what you see for yourselves—that this system of monies (pecuniae), which operates at Rome in the Forum, is bound up in, and is linked with, those Asian monies (pecuniae Asiaticae); the loss of the one inevitably undermines the other and causes its collapse.'

This passage is remarkable in its contemporary tone. Substitute US sub-prime for 'the Asian monies' and the UK banking system for 'the system of monies which operates in the Roman Forum' and it could have been written about the current credit crisis.

I will argue this Friday that, in second century and early first century B.C. Rome, increased inflows of bullion combined with an expansion in the availability of credit to produce a massive growth in Rome's money supply. This increase in the supply and availability of money in turn resulted both in a major increase in Roman economic activity and, eventually, in the credit crisis which Cicero describes."

If you are hooked, here is Philip's exact title and address: 
Philip Kay will speak on: 'Financial Meltdown in Republican Rome'
Time: Friday, 28 November at 5.00 p.m.
Place: The Stelios Ioannou School for Research in Classical and Byzantine Studies
66 St Giles, Oxford OX1 3LU, +44 (0)1865 288391
(Philip Kay is a Supernumerary Fellow of Wolfson College, Oxford)

The Pilot of the Nduga

(A report from Wamena, the capital of the West Papuan highlands.)

I have a new friend. He is Papuan, from the Nduga tribe. He is 22. And he wants to be a pilot.

His name is Samuel.

We met at the Jayapura airport. I had to stand around for hours, and in my boredom, started to circle around the departure lobby. There was a young, very university student looking Papuan guy with a girl, also very student looking, obviously a couple. (On a side note: why is it that people in similar positions look exactly the same around the world? Why is a water engineer dressing into exactly the same clothes in Budapest and in California? Why are bureaucrats in the planning department of the economic ministry look and behave exactly the same in Moscow and Brasilia? The clothes? Ok, maybe there is some common culture. The behaviour? Okay, they have to think about the same things. But the hair?) We smiled at each other, Samuel and I. Then again. Then as I was to pass by them for the third time, he had put his hand out, and announced that his name was Samuel. 

We talked the next hour and half.

He spent his early childhood in a little village in the middle of the Highlands. The challenges implied here are enormous. The Papuan highlands reach five thousand meters, on the equatorial. Translation: extremely difficult terrain, constant torrential rain, you live in tiny little huts, in the middle of a forest full of dangers, the next nearest village is half a day away, no electricity, no water, no roads at all, no telecommunication, no school, no healthcare whatsoever, just you, your family, and a few other families. That’s it. You help grow veggies, and look after the pigs. And play a lot. (It sounds rather pleasant, no?)

And then two events came. First, his dad organised that the village would build an elementary school. Second, and “African-American missionary” came to a neighbouring village, and told my friend, Samuel, that he had used to be a pilot. Samuel always wanted to fly a plane, the only transportation he had seen. There was no way, he could ever do that. But that black missionary told him that you see, here I am, black people can be pilots, too. 

My friend finished elementary school. Then had gone to high school. He had to walk three days to get to his school in the big town. Through the forest. Rain. Danger. Barefooted. Nowhere friendly to sleep. Age ten. Then three days back. Then again.

He finished high school. Had gone to senior high in the provinces capital. Then he got into a pilot school in Jakarta. He finished in May. Looked up on the internet that the best commercial pilot training is in New Zealand. He applied. He got in. Now he is looking for scholarship, and I have no doubt that he will somehow, through the impossible, get it. (Nobody is giving pilot training scholarships, especially for Papuans. But if you happen to sit on one, there is no better place for this money to go to -- I’ve got his email.)

I asked him what the people in his village need. Amazingly, he gave me a ten minute structured talk about priorities. First the landing strip, so that people do not have to walk to get the essentials. Second, healthcare. For little kids keep having diarrhoea, and it takes way too long to get to the town, and some of them die on the way. Third, education. The teacher in the school left, and the school closed. He had his chance, but what about his baby brothers and sisters? Fourth, economic development. People need to get access to the market, and have the technology to use the land and the forest without destroying it. (How many 22 year olds could give a priority list like that at a moments notice?)

He said that if he is going to get a scholarship, he will save enough on it to send his brother to medical school in America, for the second thing that his village needs is a doctor, after a pilot. 

The Papuan Highlands is the last place on Earth which is more or less untouched. Before I came here, I thought I would have trouble discussing global issues with people who share with me a cultural heritage from 45 thousand years ago, and nothing since. I thought the question of integration of global culture and economy would be something I would have to think about based on what I hear from them. Instead they are dictating the solution while I type.

We had one more specific topic. He raised the issue of how much economic development can go against leaving the environment intact. I started to explain that the ecological environment is a system, etc., but he cut into my sentence. “I know it’s a system. And of course, it’s unique. I grew up there. You come to my village, and I show it to you. My tribe will look after it for you.” Well, but who is going to pay price of looking after, then, I asked. He did not even blink: “You are the development economist, you figure it out.”

------

At the end, I asked him about Obama. You have not seen a bigger grin.

So?

(A pre-note on Obama’s victory speech, scribbled down in Kuala Lumpur)
 
A few years ago, well, exactly four, Liz and I were invited to a posh dinner on what happened to be the night after the US elections. The organiser was a good friend, who rushed up to me as we were looking for our seats, looking rather anxious. Tamás - she said - I beg you, please, please, no scandal tonight… As it turned out, we were seated next to an elderly Florida Republican couple, who were full of their recent electoral victory. (They were also partially deaf, which, coupled with the news that they financed the concert the next day, I found - shamefully - very funny. Oh those lovely trills of the violin, the nuanced pianissimo of the flute! Ah!) The reason I bring them up here is that they spent the entire evening banging on and on about how we, non-Americans, had nothing to do with their election, so we should just, plainly, shut up. It was none of our business. Full stop. (They probably said ‘period’.)
 
Oh irony! Now they will have the chance to vote for the First President of the World. (Unlikely as it is that they will use the opportunity...)
 
Over the past 18 months or so I have asked so many emerging market economists around the world about Obama’s chances. Now that he is almost there, it might be interesting to recount the universal answer: “That would be amazing. But there is no way it will happen.” The excitement, together with a hushed-worry, has reached an incredible intensity by now. There is very little debate about the real merits of the policies in question, outside the US. But as much as Obama, and Obama’s chance, have become more than the story of a politician in his home country, he has also become the symbol of the non-wealthy world. Tim Russert in his famous reaction to Obama winning the primaries said that he would love to teach history to inner city kids the next day, a point that could be widened to 90 percent of the world’s schools. The World will be a different place Wednesday morning. Or at least the World will think of itself differently Wednesday morning. Which amounts to much the same thing. 
 
And thus, it is surprising that there is very little analysis these days about the impact of this political opera on the non-US part of the world. Ironically, the US is possibly the most Obama-sceptic place on Earth, even as it elects him to be president. (Bar Iran, of course, if polls of these kind can be trusted at all.)
 
Yet there is an important policy upshot of Obama’s victory. He will be able to push through almost anything, at least at the beginning. First, he is rather likely to have a Congress and a Senate that will (a) do what he wants, and (b) perhaps even be filibuster-proof. Second, much of the rest of the world sees him as its leader. Unlike the way my Floridian table companions saw it four years ago, then, and to a much larger extent now, much of the world really does have a say. Their ‘votes’ are not counted, but the action of choosing is there, and that could give Obama a mandate on the global level. Obama will be able to push through a global agenda if he wants. Third, the hunger for sensible global leadership was palpable during much of Bush’s second term.  Now though, the global economic crisis presents an issue where new leadership could really make a difference. This offers a space into which Obama, the new political leader of the World, as opposed to merely the political leader of the superpower of the World, could move. 
 
The time-window will be very short, though. For someone from whom so much is expected, disappointment on specific policy positions could quickly erode political capital. There is no omnipotency in real life. 
 
This is why I will pay a lot of attention to what Barack Obama, the First President of the World, will say when he makes the very first speech in which he can say something. Tuesday night, American time. 

Off for a while

I am going to be on an lengthy trip for a month now. Blog posts will
be patchy.