Finite World

For all the headache the oncoming recession promises the average citizen, there remains the hope that, at most, a few years of market recalibration should see us through. Yet, with attention diverted, we seem to forget too quickly, that there is an even more worrying financial catastrophe well in the making. The spike in oil prices has, for the short-term , been averted. Yet its fall from its $147 peak to its current standing of $69 must not allow us to close our eyes. We have a resource crisis that demands our immediate attention.

The 2nd Gulf stands as unique. It was the first war of globalisation fought primarily for resources. The last century saw some international wars for ideology, others for alliances. Yet Alan Greenspan’s admission that the key to the Iraq invasion was oil allows us to discuss the glaringly obvious. In the wake of the worsening climate, such resource wars are likely to become ever more common. With an erratic water supply, dwindling energy commodities and rapid class shifts in the two most populous nations on earth, China and India, demand has begun to outstrip supply. In what is essentially a bad maths equation, we are allowing finite resources to be consumed at a linear rate.

This would be, perhaps, morally excusable were we faced with the threat now, with no pre-warning. Yet that is hardly the case. Text book examples made 10 year old students in the early 90s aware of the dangers of deforestation. Two decades later no significant solution has been advanced to protect our carbon sinks. Renewable fuels have long been on the agenda. Yet the conversion of wind and solar energy has never been funded seriously enough. We remain where we were on the Hydrogen battery. There was progress on the Montreal Protocol which cut down on CFC usage drastically. However we took steps backward when Bush refused to ratify Kyoto.

We tend to act despondently, as if we have hit the very limits of science itself – but that simply isn’t true. There are answers. The problem is that those answers seem to have never been translated out of primary school books into the world of hard policy. The fact that we have ignored our R&D on this issue is directly attributable to the will of our political masters. The intellectual power that obtained for us advances in our Quality of Life should, thereafter, have been channelled on towards long-term thinking. The discipline of engineering, the most critical discipline in this battle against resource shortage, is currently in disarray. Highly skilled unemployed engineers are a penny a dozen in England. Some pop up as gardeners, others as postmen. Technology graduates should come straight out of university and go directly into government funded research cells. Do you know how the US got into space? Kennedy wanted to get one over on Kruschev and poured the funds in. When we want something badly enough, we get it.

Let us put the argument in economically more sobering terms. In any purchase transaction there are three participants. The buyer and the seller are directly affected by the exchange. Society picks up the tabs for any externalities. It is these very externalities that responsible, democratically elected, transparent governments are supposed to deal with. Consider the automobile. Lauded as perhaps engineering’s greatest invention, it may also be its greatest failure. The manufacturer and the consumer may well be thrilled with the benefit afforded by the car. Yet the mass pollution generated has no small part to play on the erosion of Nature’s protection barrier, leaving us alone to bare the elements. Why have governments not been willing to fund, promote and educate us on the issue? Tied down by business, they remain unwilling to chide the electorate into more responsible transport behaviour. Both in UK and US public transport should have been invested in and made the norm long ago. Car-pooling should have been promoted. Limits to one car one family should have been enacted. Petrol rationing, such as is found in Iran, should have been enforced. The automobile is only one example, but perhaps the most resonant Western motif signifying our wanton misuse of this planet. Symbolising the freedom of transport, we have allowed ourselves to be seduced into the belief that a car is an individual’s right. How, on earth (pun intended), can we justify this? In a congested world, we have to give way. After all, the law of the road is supposed to be different from the law of the jungle.

Sliding Down the Learning Curve

‘Mammon being carried up from Hell by a wolf, coming to inflame the human heart with Greed.’ Aquinas on Avarice

In mid 1997, the Thai Baht began to falter. Its decline marked the beginning of the East Asia crisis. Currency speculation had led to a supra-artificial economy. As traders in the First World poured money in purchasing the exotic currencies, their values shot up. Predictably enough, the moneymen then cashed in and sold up. The flight of capital out of the East sent the economies of the Asian countries into free fall. It was (uptil then) the greatest recession since the Great Depression.

Why do we need to be reminded of this not so old economic history now? Because history seems to be bent on repeating itself. True, if we ignore the issue of the scale of central bank injections, there are other possible candidates that share more specific similarities to our current downturn. The Japanese crisis at the turn of the 90s has, perhaps, clearer parallels. Paulson and Co. seem to have pinned their hopes on emulating Sweden’s support for its failing financial institutions. All this admitted, there still remain central economic tenets that we should have gleaned from what happened a decade ago. Our failure to learn wisely has allowed for the chickens to come home and roost.

The sweet irony is that, although the modern transaction may take place in trendy neon-lit , soaring glass skyscrapers that house our financial industry , we still remain addicted to some pretty age-old economic wrongs. I refer the reader to my previous post. If gambling-addicted traders sinned in their pursuit of greed during the East Asian crisis, then usurious bankers have a lot to answer for today. Both built artificial economies on the presumption that the good times would always last. The difference was that , last time, we didn’t feel the pain and so had no incentive to learn the lessons that were clear to all. I suspect this time might be a little different.

So are there any golden rules that could help us avoid ‘next time’? There will be plenty of suggestions to come, but two basic laws must not be forgotten : (1) – Unimpeded free markets are an idealists dream; State intervention will always be needed to maintain the balance of economic forces. Then, the IMF couldn’t stomach this as it exacerbated the crisis with its monocular thinking that forbade capital controls. Today, the nationalisation and recapitalisation of world banks mark a watershed in economic thinking. The mixed economy has returned to being the default option. Now we must continue through and recognise that the markets are not solely accountable to the laws of confidence. To be sure, we cannot not engage in the folly of communism and seek to ignore the laws of supply and demand altogether. Nevertheless both recent failures have highlighted that the rampant flow of money based on a whiff of information can be catastrophic. We need to slow down our casino trading, regulate our bankers and align interests so that they suffer if they take wild risks. (2) – Just as importantly, prosperity is judged on true blue growth and not on inflated fiscal standards. Before the East Asian crisis we in the West arrogantly assumed that industrialisation had nothing to do with wealth creation. Instead of FDIs which could have been hardwired to the pre-97 manufacturing boom of East Asia we speculated with capital which was begging for investment. Today, the interconnectedness of banks means that we will end up paying for our national neglect of manufacturing. House prices may have provided paper wealth, but in this game of rock, scissors, stone, our monopoly money simply will not stand up against the Chinese spanner . The Thatcher/Major/Blair years saw manufacturing either outsource or grind to a halt. London might well aim to be a centre of finance, but that need not mutually exclude its being a centre of produce. Home and abroad, we need to reprioritise.

These, then, are basic, rudimentary lessons. In these testing times we are likely to acknowledge them, much like the fevered patient who must swallow the bitter pill. But when we are healthy will we remember such preventative prescriptions? Hardly likely. After all, man is made of haste.