Scott Tyler's Blog

A pair of economists recently published a book entitled "This Time Is Different."  They studied 800 years of speculative bubbles, economic collapses and financial stupidity.   Their research is exhaustive, their arguments convincing- they have proved that history does, indeed, repeat itself.  Over and over again.

Yet mainstream economists pride themselves in ignoring history, or even current events.  They care only about creating ever-more complex and 'elegant' economic models, which are more akin to metaphysics than science, as they are not  grounded in any form of experimental method.  Their formulas are like a delicate crystal vase: beautiful to look at, but almost completely useless.

I hate to sound utilitarian, but an economic theory which does not explain the present economic situation, and help policy makers and businesses prepare for the future, is no more useful than a Sudoku puzzle.  It's an intellectual exercise, perhaps, but nothing more.  A mere game.

Much more useful than any model is an actual examination of the historical record.  I'm sure if economists had been more familiar with past speculative bubbles they could more easily have recognized the housing bubble which just burst in the U.S.     

History offers innumerable examples of countries which have faced economic collapse and social and political upheaval  because of unmanageable debt.  Yet many governments- encouraged by economists- have acted, in the last two years, like teenagers with their first credit card.   Only now- trillions of dollars too late- have they sobered up.  Yes, we avoided a long recession.  But at what cost?   We avoided two years of recession by accumulating debt that will take 20 years (optimistically) to pay back.

Our ancestors made many mistakes.  We could learn from them.   Or we could ignore history, and make the same mistakes all over again,  while we create elegant and useless economic models which explain nothing.   If economists don't get serious about studying the real economy, they should step aside, and let historians do their job.

Dear G8 Protesters:

I understand and totally sympathize with your disgust of globalization, multinational corporations and the whole rot of global capitalism.  I hear you, brothers and sisters!  Down with the New World Order!   Stop Global Warming!  Hug a tree!

But the next G8 summit is in my old hometown (well, one of my hometowns).  It's a quaint, backwoodsy little place- which is probably why they chose it (easier for security).  It's not New York, or London, or anywhere close to the centers of power.   Nobody who knows Huntsville would ever mistake it for Wall Street.   This is cottage country: where people go to get away from all of that money-grubbing, rat-race nonsense.   A 'blackberry' in Huntsville is still something you make jam out of.  Now, ironically, this little town is going to be the global financial epicenter-  at least, for one day. 

So please, oh protesters, be kind.  Don't burn down our little innocent town.  (Why not just protest the Muskoka way, and moon the world's leaders?)   There will be other summits.   Other chances to get arrested (with nicer jails than Huntsville's... ew!) and other ways to  'fight the system'.  Why not skip this one?  

Yours Sincerely,

S. Tyler 

Thank you, Greece.  You have made plain, finally, the folly of having a common currency, the Euro, without a common economic policy to back it.  And of course a common economic policy is impossible when economic decisions are being made by a dozen different governments, with conflicting social and economic priorities, representing countries with different levels of economic development.  One government is worried about inflation, another with high unemployment, yet another with rising deficits.  Each country is using the Euro, yet each country's government is independently implementing contrasting or even conflicting economic policies.  This cannot work.

It reminds me of my neighbour, who built a tree house supported both by the living tree and by poles.  While the poles remained fixed in the ground, the tree grew, slowly tearing the tree house apart.  The same problem is presented by a common currency used by the large, highly developed economies of France, Germany or Italy, and the smaller, less developed economies of Central Europe, Spain and Portugal.

This crisis will be a turning point for Europe.  The status quo has failed.  Europe must either create a unified economic policy, implemented by the European Union, or discard the Euro (and any dream of a future European State) to return to the use of francs, deutsche marks and lire.  The latter would be a disaster, both economically and politically, for Europe.  There is really no choice but to move forward. The E.U. must create a European Department/Ministry of Finance to set a single, E.U.-wide economic policy. 

If the E.U. controls economic policy, it will mean a loss of sovereignty for  European nations.  But this was always the inevitable result of adopting a common currency.  The E.U. has acted, up until now, as a confederation of independent states.  No one is a citizen of the E.U. or pays taxes directly to the E.U., although representatives to the European Union are now directly elected (a sign of a federal, rather than confederal system).    Confederation, however, is no longer adequate, and the slow and halting evolution of the E.U. towards federation must be accelerated.   Fence-sitting countries, such as the U.K., which have not adopted the Euro, must decided whether they want to be part of the federation, or not.  In or out.  Because in a federation, unlike a confederation, you are either citizens, or you are not.

This is my 'bucket list' (a list of things to do before I "kick the bucket"-- die).  This is just for fun.  If I do all, or none, of these things, it won't really matter (except #11 and #12!)

Travel:

1. See all 6 inhabited continents.

2. Visit every Canadian province and territory.

3. Visit at least 1/4 of all countries: 50 or more.

4. Visit Tikal

5. Visit Jerusalem

6. Travel across Asia, from Beijing to Istanbul or vice versa

7. Travel down the Amazon, Mississippi and Congo (or Niger) Rivers.

8. Travel north of the Arctic Circle, and south of Tropic of Capricorn

9. Travel 1st class, or business class, at least once.

10. Travel by hot air balloon, helicopter and submarine.

Relationships:

11. Get married, and stay married

12. Have children

Financial:

13.  Save $200,000 by age 60.

14.  Pay for my children's college education

Learn:

15.  Earn my Ph.D.

16.  Learn to play a musical instrument

17.  Learn how to ride a motorbike

18.  Learn Standard First Aid (I've learned Basic)

19.  Learn how to cook at least 3 Chinese dishes

20. Learn how to play majong

Languages:

21.  Learn at least 3,000 Chinese characters.

22. Pass the Intermediate HSK (standardized Chinese test)

23.  Learn to read the major writing systems of the world:  Roman, Greek, Cyrillic, Chinese, Korean, Japanese, Hindi/Urdu and Arabic.

24. Become fluent or semi-fluent in 4 languages: English, Chinese + 2 others

25. Learn to say "hello, goodbye, thank you" and No.s 1-10 in 30 languages.

Possessions:

26. Own a house or apartment

27. Own a car.

28.  Own a yacht.

Other:

29. Become a published author

30. Get my Ph.D.

31. Appear as a guest on David Letterman or Jay Leno.

32. Address the U.N.

33. Get elected to public office

34. Win a prize for literature

35. Attend the Oscars

36. Skydive

37. Build a school in a poor country

38.  Save someone's life

39. Go to a place where no-one has ever been before.

I've heard a lot of  talking heads worrying about a future war over natural resources, either oil or water.  While it's an interesting idea, I don't believe it's likely, for one simple reason: it's never happened before.   There have been shortages of strategic materials before, and past oil, water and even food crises.  But there has never been a full-blown war between two countries  over natural resources, fought out of dire necessity.  Well, not in 4,500 years.  The last (and only recorded) formal war fought over water was in 2500 B.C.

One could argue that Saddam Hussein invaded Kuwait for its oil.  But Iraq didn't need Kuwait's oil: they were, and are, an oil exporting country.  Similarly, some have argued that the United States and her allies fought the two Gulf Wars over oil, but even if that is true, Iraq and Kuwait represent a small portion of the U.S.'s oil imports (less than 10% combined), so I don't see how that implies a dire necessity.

Iraq and Syria have had serious water disputes with Turkey, which has dammed several rivers that flow through the three countries (including the Euphrates).  But they have not gone to war over the issue.  Similarly, Israel's neighbours claim that it is taking more than its share of the water resources of the region.  But Jordan and Syria have not attacked Israel because of it.

Resource shortages- especially of food- have provoked riots, rebellions and revolutions.  But they have never provoked international wars.  Why?  Because poor countries do not attack rich ones.  The weak do not attack the strong.  If one country has a resource which another country wants, the latter country can simply purchase the resource (sometimes at an inflated price).  Rarely will a supplier country refuse to sell a resource at any price, unless they don't have enough for themselves.  In which case, attacking that country will do little good, as the defenders will fight desperately to keep what they have, and spoil it rather than surrender it to their enemy.

Wars are not fought because of necessity.  They are fought because of greed.   They are fought by the strong against the weak, and by the weak in defense against the strong.   Sometimes they are fought for ideological reasons, but usually ideology is an excuse for ambition.  The Arab conquests of the 6th and 7th Centuries were not really about spreading Islam, they were about plundering their neighbours.   Likewise the Spanish conquests in Latin America were supposedly for 'God, gold and glory', but God and glory had nothing to do with it.  It was gold, and gold alone, which fired the conquistador's hearts.

There is no question that there will be oil shortages in this century.  That resource is dying out.  Fresh water, likewise, is becoming scarce in some countries.  But will there be wars as a result?  History says that it is unlikely.