May 9, 2010

Why the West’s economic prosperity can no longer be taken for granted

As the Times of London put it, Stephen King writes scary stories, but Stephen D. King writes scarier ones. He is the chief economist of the London-based HSBC, one of the largest banking and financial services organizations in the world, and Losing Control: The Emerging Threats to Western Prosperity is his first book. And a scary book indeed, according to the reviews I’ve read so far (I’ve never been an avid reader of economics, and that’s why I don’t really know if I will read the book, though according to the Times “You don’t have to understand the carry trade or know what a Gini coefficient is to read this book, but it helps”—what terrifies me is that but it helps…).

What is it about this book that is so scary? To put it up very simply, the thesis is the following: The international financial crisis that began in 2007 is but one result of the emerging nations’ increased gravitational pull. In other words, the baton of economic progress is passing to states such as China and India. This suggests that the decades ahead will see a major redistribution of wealth and power across the globe that will force consumers in the United States and Europe to stop living beyond their means.

Or, put more simply, “Be prepared, the worst is yet to come.” Yet, Stephen D. King also offer us a few possible ways out of this unpleasant situation. The main one is the creation of three big monetary unions—an expanded euro zone along with currency unions in Asia and the Americas. But, as The Economist puts it, “Mr King fails to make a convincing case for why such a reform would ever happen or why it would lead to a more stable global monetary system.” That’s also why, according to The Economist, the book “is more a series of provocative comments than a convincing argument.”

Another way out of the bind, with regard to the UK, is that, instead of limiting immigration, Britain should dismiss border controls and protectionism and welcome immigrants, and, painful though it may be in the short term, open ourselves up to the full force of global competition.

At a symposium in Trinity College Dublin last month to promote his book, just to make it clear what the whole thing is all about, King provided some curious information and a series of thought-provoking data. Very interesting reading indeed.

He also quoted the response of the UK economics profession when the queen asked why no one had seen the bank crisis coming: “Your majesty, the failure to foresee the timing, extent and severity of the crisis and to head it off, while it had many causes, was principally a failure of the collective imagination of many bright people, both in this country and internationally, to understand the risks to the system as a whole.”

Failure of imagination: term used to describe circumstances wherein something that was possible to predict or foresee was, in fact, not predicted or foreseen. Hope you got the hint.



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3 comments:

  1. a bit too pessimistic for my taste, but then again, he is right, of course...

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  2. But I prefer Stephen King ....

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  3. We have Iceland's volcano to contend with, the ever gushing oil leak and tornados for Americans to contend with. We have mad radicals to contend with. We are treading water trying to stay economically afloat in Europe, whilst Monsieur Trichet remains suspiciously silent. The weather's lousy. And Stephen D. King chooses such a period to publish his thoughts that 'things are going to get worse'..

    I remember reading 'The Future Shock'. Can't even remember who wrote it, but it's way out of date already. In principle the same will apply to 'Losing Control', especially if it's unsuitable cinema material. Everything will be 'as per usual' by the time the book has gone out of print, and Steven D. King won't have any control whatsoever regarding its sad fate.

    But the ideas and philosophy of economist Adam Smith are still valid. And if this is indeed the case, there's no reason why the whole world won't be able to benefit from the success of 'emerging nations'. After all the same rules apply, if they are respected and adhered to. What's good for one nation is good for another. The consumer reaps the rewards of healthy, legal, commercial competition and enterprise, which shouldn't include the glut of Chinese counterfeits.

    So let's remain optimistic and positive. In any case one can always go fishing, for example.

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