DABERIAM LXX

August 2012

The future is always uncharted water. Ancient maps filled in the blank spaces with comments such as “there be dragons” The beauty of this statement is that somehow it is more comforting than saying “We don’t have any idea”!

The major difficulty with the economic world today is that there is an overload of opinion purporting to be information. This is rather a roundabout way of coming to a necessary observation on the London Olympics. In spite of fears, uncertainty and a general lack of confidence in GB, the Games so far have been a stellar success both in the performance of Team GB and the organisers. Britain has developed an embedded form of pessimism; part of this pessimism seems to be generated by the prevailing Socialism in most of Britain’s intellectual and artistic leaders. The Opening Ceremony of the Olympics is a case in point. A brilliantly choreographed and executed performance; an amazing spectacle that one could not help applaud. Sadly, however, the theme was a travesty of historical interpretation. The rural idyll never existed, life in the country prior to the Industrial Revolution was horrendous for its poverty, disease and periods of near famine. The Industrial Revolution, along with the Intellectual Revolution, created undreamt of wealth for the majority of the population. Although by modern standards it was awful, it was still better than the experience of those “living off the land”. The rural idyll in fact was a product of the desires of the Industrial Revolution and where it did exist was generally created using industrial wealth. This “intellectual” denigration, by the association of modern agriculture and industry, and the promotion of one of the massive institutions of inefficiency does little to help the public mind grasp the need for the so-called re-balancing of the economy towards the productive sector …………….but enough of this churlishness. The Olympics so far is an outstanding achievement and hopefully will cast an optimistic afterglow.

While the bad news is the normal result of an economic bubble and the recovery is slowed by the enormous weight of regulation and bureaucracy, combined with the lack of political leadership in Western countries, the bureaucratic forces in Europe in the form of Basle III which is hampering the banking system, and Solvency II, a new dragon, which is intent on crippling the pension funds of European industry. Other dragons in the form of green politics and policies, such as converting food, corn etc., into so-called biofuels is going to exacerbate increases in food prices, which are likely to rise dramatically in the near future. A rise in food prices is likely to further undermine European stability where severe unemployment is causing appalling social hardship.

The good news and feel-good factor of the Olympics is not only suppressing the bad news but is also hiding the good news. While Europe is in a parlous state, the US and Asia are quietly doing well. Low energy prices in the US are a great boon to general economic recovery and real construction spending is recovering rapidly, along with the US motor industry – two major economic drivers.

US stock markets, in spite of gloomy forecasts of a big July and August sell off, as in 2011, have held up well.

The Asian economies are all on the whole running comfortably and to a large extent feeding off each other. The Chinese enigma remains in a steady growth pattern, albeit at a planned lower level than we are historically used to. China is, however, feeling some pain as 40% of its exports historically go to Europe and are therefore suffering.

India is having one of its periodic bouts of administrative influenza, which should be a warning to Europe. A country with massive bureaucracy that hampers industrial development has managed to cause a spectacular breakdown in the electricity supply system. Endless regulations and controls tie up the power industry in knots and make long term planning and development economically unattractive, an extraordinary feat bearing in mind generating and distributing electricity, even and including atomic energy, is a relatively straightforward and predictable operation compared with many other industrial processes.

Perhaps the greatest threat as the future unfolds is the Middle East, the world’s single greatest source of liquid fuels. Here a whole pack of dragons have been brought to life and unleashed! While food and fuel are probably the two greatest but obvious worries, the general economic outlook is benign. There are several almost certain crises, but they could be beneficial. Western governments have become complacent and mired in political squabbling, a genuine crisis is needed to get the political classes to focus on doing the job they are elected to do.