Friday, July 4, 2008


So what we have in the US is properly called a hyperpower. It’s beyond super, it’s metasuper; it’s hyper. I’m sure you know or have heard, though on the decline, it’s not just the most powerful nation on earth today, but it’s supposed to be the most powerful nation on earth in history, in time. Not only is this military might which has increased, of course, around the world, but I would say primarily economic might. It seems that we, the US, do use acts of aggression but these days they are usually a third resort after certain other measures (no elaboration given now) including economic. (see “Confessions of an Economic Hitman”)

Understanding the economy, then, is so important in fully comprehending and apprehending what is going on in the world. The problem is that even esteemed and veteran economists disagree about macroeconomics (micro being more seemingly simple). Sometimes basic economic laws that we learned in school or at university work in the opposite direction; sometimes there are hidden factors; sometimes we don’t know if things like supply-side economics actually works (has it ever been proven?); we don’t fully understand all that is going on and the complex multifaceted and multi-degreed economic system that is the world economy.

So we arrive at today in which, for us South Africans, we battle a few global problems outside xenophobia:

  1. high oil prices
  2. high food prices
  3. high inflation

They are all affecting each other and all areas of society. To oversimplify, around the world, the demand for food has outstripped the supply (supposedly). There are many economists who would actually argue against this. (opinion) Though the rate of increase of the demand for food is outpacing the rate of increase supply, I still think we have enough food to provide for the demand in the global market. The issue is one of distribution. However (continuing with the opinion from observation) it is true that demand has outstripped supply in submarkets of the global market or in regions. This is true. And so in places like South America to South Africa (one is a continent the other is a country) to Africa, people are suffering. And they do not have the mobility and ability to just pay the higher price.

Here in South Africa, you can actually go to the store and SEE the price increase. It’s not just theoretical. We notice it. Do you notice it there in the US? It’s an interesting phenomenon. So here, we buy less, eat less, and hope for government intervention which though it may help our submarket (SA) in the short term has an effect on the global market that to free-trade-advocates is not beneficial.

Some believe we should adopt policies like China that artificially keeps inflation down. But then again, you would have countries like the US, IMF, and the World Bank upset with you. I think they are only upset with you if you contribute a lot in global trade or participate in the global market much. They would be much less upset with those of us in South Africa. But a more natural and long-term permanent solution is needed. Unfortunately with macroeconomics, sometimes you apply a solution only to realize that the timing of your solution missed the height of the problem (look at the US Fed who tried to lower interest rates to boost the economy viewed to be in a recession AFTER it was already in recession; and who knows where the peak is?). So many times (opinion) I believe you have to time the interest rate change so that it’s effect is felt at the height or peak of the recession/depression or boom. Imagine macroeconomics to be something like a pendulum or a swing or a slinky. If the pendulum is coming towards you, you can push it is so that it goes back to center, but if you push too much you give it swing in the opposite direction. Then you have to push it from the other direction or pull it from where you are, but if you don’t the right amount at the exact right time, you create a new force and send it running off in another direction. The interesting thing is that if you leave the pendulum alone, though it swings back and forth eventually (with no outside excitation or catastrophic events) it stabilizes. Sometimes it’s harder to reach the stabilization point while pushing and pulling it all the time. That’s why timing is important to the process.

Here in South Africa, we’re trying to decide exactly how to prime or pump the economy which is not doing well. Housing prices here are up (as elsewhere), and purchases are down (makes sense). I was just window shopping for million-rand properties this weekend. I should let them know I won’t purchase, but it was fun!

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