The crisis: get a grip

A phrase that seems to be cropping up lately is, “It may not technically be a recession, but it doesn’t matter whether it is or not, it feels like one”.

Well, recession for me means an actual contraction in the economy as a whole. We are either in it or not.

What worries me is the perception problem.

A famous study in the US some years ago found that people in general were pessimistic about the economy, seriously overestimating unemployment and inflation figures, while admitting their own personal circumstances were quite good.

Perhaps it’s a consequence of having been in the country during the nadir of apartheid that I don’t personally feel that glum about the economic tsunami that seems to be headed our way.

We may be facing a possible downturn, but this time round we don’t have bombs going off in the streets, troops in the townships, the secret police killing people, the army waging illegal war outside our borders, and dramatic, direct disinvestment accompanied by special bans on certain luxury goods to protect the current account of the balance of payments etc etc.

This is not to say the situation isn’t serious, but we really have to struggle against irrational fear.

Not so long ago world recession was not what was fuelling fear, but the oil price and the limits to growth.

An article in the Mail & Guardian in March reanimated the Club of Rome book which in the 1970s predicted that the world would run out of oil in the 1980s.

You would think the fact that we did not, and have not, run out of oil would be enough to condemn such a book to the remainder bins, along with many other books of doom-laden prognostication.

But no. Whenever oil spikes, it will be hauled out, dusted off, with cries of, “You see!” Well, it must be right some day.

If you want something to worry about in the world, you’ll find it.

The following exchange between Lula (played by Laura Dern) and Sailor (played by Nicolas Cage) in the film Wild at Heart sums it up:

Lula: One of these days the sun’s gonna come up and burn a hole clean through the planet like a giant electrical X-ray.
Sailor: I wouldn’t worry about that, Peanut. By then people’ll prob’ly be drivin Buicks to the moon.

It is true that books whose theme is a future bleak outlook for the human race stir something deep in us. For the individual, the future is finite. All that lives must die.

Pascal said it well. “The last act is bloody, however fine the rest of the play.”

Humanity as a whole, however, has proved remarkably ingenious and hardy in the face of persistent disaster, natural and engineered by humans.

I do not know how deep the global recession will be, how long it will last, or how badly South Africa will be affected. I do know that this crisis too will pass.

I hope it will give all involved in thinking about economics the spur to re-evaluate what has been happening in world finance, without some crazy rush to regulate innovation out of existence.

And when I think of innovation, I’m not thinking of fanciful financial products for the rich, but the worthy attempts in Africa to expand financial exclusion through “bottom-of-the-pyramid” approaches.

Back to recession, and the thing we have to fear more than recession, is fear itself, as Franklin D Roosevelt said.

The last Reserve Bank Quarterly Bulletin showed that South Africa had about 10 years of the upward phase of the business cycle. This is the longest ever. No other period comes close.

And for the first time in many years we saw in 2007 that Gross National Income (GNI) per capita was the best in three-and-a-half decades (the per capita GNI is the country’s economic wealth, adjusted for inflation and divided by the population).

The increases in wealth we have seen are not spread equally, and they are likely to hit strong headwinds.

At the same time an economic slowdown will mean less pressure on inflation and so lower interest rates. We start at least from a position where interest rates are not so low to begin with that they cannot be lowered below zero.

Government finances are sound enough that infrastructure spending can be financed by borrowing, so that should offset some of the effect of the weaker world economy.

And we know that exchange control protected our banks from getting involved in some of the destructive derivatives that exploded last year.

I don’t want to sound like a “sunshine journalist” desperately searching for a silver lining. The storm has not fully hit us yet. But it does seem that we are better off than many other countries. Let’s panic when we really have to.