Don’t panic, yet

Don’t panic, yet

Tsang Shu-ki

23 January 2009

There are limited shocks that a mortal being can take. I suffered a nearly fatal one in 2002. But that’s trivial, compared with the upheavals in the world’s economic environment in recent years.

I’ve been sticking to the role of being a pessimist since the 1990s (perhaps much earlier, friends and foes might say), as I tried to develop a modernized version of capitalist long wave, in the light of the rise of China and shifts in the global geopolitical balance.

I am fully aware of the observation that every optimist or pessimist would “eventually” be proven correct. If one lasts long enough, that is. Honestly, though, I have not adopted that strategy to gain any thing material. The other side of the coin is: “if you can’t beat it, join it.” That has never been my preference either.

Indeed, as a person with largely “leftist” (however defined) background and inclinations, I went as far as getting involved in putting forth concrete measures to secure a fixed exchange rate regime for one of the “freest” capitalist economies in the world. (I was also advocating a comprehensive competition law for it, though.)

Then I wondered about China’s “miracle” in solving its banking and financial problems and warned against the costs of depending on open policies and external exposure without addressing deep-seated structural problems in the self-heralded process of a “peaceful rise”. Other than obvious widening income and wealth inequality within the country, a key concern was China’s resource constraints as a possible superpower. The second and third decades of the 21^st century could morph into a “fight for resources”, on top of a “clash of civilizations.”

The proposition that a return to glory of a country with such a long history and the largest population in the world could be “peaceful” is a very heart-warming one. Despite my ingrained pessimism, that’s my most treasured wish.

In the much nearer term, the global economic shocks arrived in 2008. Although I had forecast them in general forms for long, I was not exactly prepared for the timing and the ferocity of the sudden turning point. Well, history is interactive, as I’ve been arguing. People with equal intelligence and insight about history must number millions, those with actual decision-making power probably into the million. And those with “conscience” and “integrity”…..

In fairness, I said things pretty nasty about the unfolding crisis and the implications for China last October. Those remarks appear to be forward looking.[1]

The financial tsunami is not just a financial phenomenon: it’s the accumulation of decades of capitalist excesses and global imbalances, in the real sector but exacerbated by the lack of proper market rules and regulations in a system dominated by Wall Street. China has benefited in the past decade at least. I would not be surprised that the time to repay might come very soon (if it hadn’t arrived). But by how much? I can’t quite figure out yet.

In any case, this is not a normal cyclical recession. It’s a once-in-many-generations global crisis.

Alas, there is a limit to what one can analyze as a mortal, about repeating and almost immortal human follies, in the long cycles of economic history. Given the unprecedented efforts by governments everywhere, I suppose that it’s not the time to react emotionally, even if one hasn’t already positioned out of the bubble and its aftermath. Looking ahead, there would be false hopes and reinforced cascades, before the real light at the end of the tunnel.

As to the further problems down the road of the 21^st century, I’ll leave them to my younger and much younger mortals to panic about, solve innovatively or enjoy possibly happy consequences, not necessarily in that order or in a single round. I also have little clue concerning the utility weights on costs and benefits which only they in the new era can decide on.