Tuesday, November 11, 2008

The primary reason for the current economic downturn

As you know the economic crisis we are currently having is one of the worst economic depressions that the world has seen for decades - probably the first one so global ever. Many are wondering what is the reason for such an event. I have one idea.

The primary reason for such a deep and such a global crisis is that there is no one person and no one institution whose job it is to keep the global economy on track. OK, this might seem strange, but the lack of a responsibility leads to many problems in any organization. It is one thing if the people responsible are not doing their job perfectly, but it is much worse if there isn't anybody appointed to be responsible. So in this global economy ee are just working and looking over our part of it. We try to make the best out of the system for us, but there is nobody looking over the big picture. It is like playing football without a referee. For some time everything might seem OK and the game goes on fine, but at some point the players might get into a fight and without a referee a football game might collapse into a fist-fight.
The last really big economic depression - the one on the thirties - was also due to the fact that there were no central banks and no systems taking care of the national economies. Luckily people were smart and created them afterwards and they have pretty much softened the national crisis afterwards. But now the economy has grown global and there is no global central bank who looks over the rules of global finance markets or puts cash from the global markets to reservers during good times and uses the reserves during bad times. Someone who could influence the global economy with taxes and financial reserve rules or interest rates.
Well you might say, that there are some institutions doing some work in this area like the IMF or World Bank or even the EU, but their role is far from what is needed.
So the commerce banks, the national banks, the multinational companies, the governments, the people...we just play in this global game of economics without the referee or even straight forward rules that everybody must obey. Sometimes we even don't recognize this situation and think that there is somebody who will bail us out when trouble comes. This was probably what the bankers of Iceland were thinking.

While Micro- and Macroeconomics are taught in every university program then the global economics is a rather new subject for only some MBA courses. The situation is so new that there is a lack of research, theories and best practices for the much needed Central Bank of the World.

But to comfort. :-) The thing that we have no institution taking care of the global economics is nothing compared to the fact that there is nobody who has the power or the responsibility to take care of Global Warming or Peak Oil. Or do you know somebody whose job description reads:
Save the world from the Arctic Meltdown and the extinction of species and while doing that also find a way to substitute Oil in peoples energy consumption.

The economic downturn is one thing, but this is nothing compared to half of Europe becoming part of the Atlantic ocean.

1 comment:

Toivo said...

"As you know the economic crisis we are currently having is one of _the worst_ economic depressions that the world has seen for decades - probably the first one _so global_ ever."

miks sa nii arvad? kõhutunde järgi? meediapildi vahendusel? arvudele tuginedes? ;)