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WHEN I was a university student in the late 1960s, I thought I was pretty smart. By the time I reached the age of 40, I realised I actually knew very little. And today, at 65, I positively know that I know nothing.
Okay, perhaps I am exaggerating. But the point is that the world in which we live is so complex that often we can only understand something with the advantage of hindsight – which, as they say, is 20:20.
And that makes historians (yes, I am one) perhaps the most insightful and knowledgeable people of all (joke).
But seriously now, the hardest thing in the world is to properly fathom a process while it is taking place.
Recently, the US Federal Reserve Bank – popularly known as the Fed – published the transcripts of the 14 meetings of the Fed’s top people while the economic crisis of 2008 was unfolding. These show that only one of them, Janet Yellen (the bank's newly-appointed chairperson who was, at the time, chairperson of the San Francisco Fed), actually understood the depth of the crisis which was developing around them.
Even Ben Bernanke, then head of the Fed and a highly respected economics professor who had written an acclaimed study of the meltdown of 1929, floundered about, congratulating himself on doing very little to solve the problem.
This is not written to criticise those people. It goes to show that economics, in contrast to mathematics, is not an exact science.
On the contrary, it is often like licking the end of your thumb and sticking it into the air to feel which direction the wind is blowing from.
Economists (and historians like me) even differ about the basic approach to economics. How do we get out of the crisis? Do we spend our way out of it? Is frugality the answer? Will it go away by itself – is it merely part of a cycle which we can do nothing about, like winter following on autumn?
I am no expert, far from it, so please don’t look to me for answers. However, for what it is worth, I hope I have learnt a few home truths which may help others find their way.
Firstly, there is nothing wrong with borrowing money, provided a few conditions are met.
Spend the money on improving productivity, not on current costs.
For instance, if you are a plumber, by all means borrow the money to buy a little van to carry your tools and travel from customer to customer; this enhances your ability to earn a living. Do not blow it on an expensive holiday.
Likewise, when a state borrows money, use it to build roads, railways and harbours, or improve the electricity network, or to bring fresh water to households. Do not use it to increase officials’ salaries. Above all, do not fund a Nkandla with it!
If you do it this way, you may even spend yourself out of a crisis, or at least soften the devastating impact on your people.
Secondly, be reticent when borrowing money. Remember that you have to pay it back, with interest. You cannot indefinitely go on with budget deficits, as governments all over the world tend to do. Your debt cannot rise with no end in sight.
Probably the biggest sinner in this regard now is the US government. When these words were written, the US debt clock web page showed that the US federal debt was nearing $17.4trn. (Please don’t ask me how much that is.)
Sooner or later, this debt mountain is going to crush the United States. And my logic tells me that the rest of the world, including South Africa, will feel the severe consequences.
In the third place, having a big chasm between rich and poor is never a good thing. This has nothing to do with socialism; it is merely common sense.
In the 1960s, Afrikaner tycoon Anton Rupert defended his investment in Lesotho, saying: “If they don’t eat, we won’t sleep.” These words are equally true of the situation in the world as a whole, and in South Africa.
Internationally, the Third World population is growing explosively, while those in the First World are stagnating or even diminishing in numbers. A country like Germany – which is an extreme case – is in danger of imploding in a few decades because there are too few productive people and too many elderly depending on them.
Even now, Third World poor – spurred on by wars, corruption and famine – are trying desperately to get to the riches of Europe and America. We see it even in southern Africa.
How to handle a crisis such as the 2008 one – who knows? Nevertheless, there are a few things which we, with the aid of common sense, perhaps may know after all.
The problem is that most governments look only as far as the voters before they shrink back and continue spending on the rich and mighty. Even in South Africa.
- Fin24
* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.
Okay, perhaps I am exaggerating. But the point is that the world in which we live is so complex that often we can only understand something with the advantage of hindsight – which, as they say, is 20:20.
And that makes historians (yes, I am one) perhaps the most insightful and knowledgeable people of all (joke).
But seriously now, the hardest thing in the world is to properly fathom a process while it is taking place.
Recently, the US Federal Reserve Bank – popularly known as the Fed – published the transcripts of the 14 meetings of the Fed’s top people while the economic crisis of 2008 was unfolding. These show that only one of them, Janet Yellen (the bank's newly-appointed chairperson who was, at the time, chairperson of the San Francisco Fed), actually understood the depth of the crisis which was developing around them.
Even Ben Bernanke, then head of the Fed and a highly respected economics professor who had written an acclaimed study of the meltdown of 1929, floundered about, congratulating himself on doing very little to solve the problem.
This is not written to criticise those people. It goes to show that economics, in contrast to mathematics, is not an exact science.
On the contrary, it is often like licking the end of your thumb and sticking it into the air to feel which direction the wind is blowing from.
Economists (and historians like me) even differ about the basic approach to economics. How do we get out of the crisis? Do we spend our way out of it? Is frugality the answer? Will it go away by itself – is it merely part of a cycle which we can do nothing about, like winter following on autumn?
I am no expert, far from it, so please don’t look to me for answers. However, for what it is worth, I hope I have learnt a few home truths which may help others find their way.
Firstly, there is nothing wrong with borrowing money, provided a few conditions are met.
Spend the money on improving productivity, not on current costs.
For instance, if you are a plumber, by all means borrow the money to buy a little van to carry your tools and travel from customer to customer; this enhances your ability to earn a living. Do not blow it on an expensive holiday.
Likewise, when a state borrows money, use it to build roads, railways and harbours, or improve the electricity network, or to bring fresh water to households. Do not use it to increase officials’ salaries. Above all, do not fund a Nkandla with it!
If you do it this way, you may even spend yourself out of a crisis, or at least soften the devastating impact on your people.
Secondly, be reticent when borrowing money. Remember that you have to pay it back, with interest. You cannot indefinitely go on with budget deficits, as governments all over the world tend to do. Your debt cannot rise with no end in sight.
Probably the biggest sinner in this regard now is the US government. When these words were written, the US debt clock web page showed that the US federal debt was nearing $17.4trn. (Please don’t ask me how much that is.)
Sooner or later, this debt mountain is going to crush the United States. And my logic tells me that the rest of the world, including South Africa, will feel the severe consequences.
In the third place, having a big chasm between rich and poor is never a good thing. This has nothing to do with socialism; it is merely common sense.
In the 1960s, Afrikaner tycoon Anton Rupert defended his investment in Lesotho, saying: “If they don’t eat, we won’t sleep.” These words are equally true of the situation in the world as a whole, and in South Africa.
Internationally, the Third World population is growing explosively, while those in the First World are stagnating or even diminishing in numbers. A country like Germany – which is an extreme case – is in danger of imploding in a few decades because there are too few productive people and too many elderly depending on them.
Even now, Third World poor – spurred on by wars, corruption and famine – are trying desperately to get to the riches of Europe and America. We see it even in southern Africa.
How to handle a crisis such as the 2008 one – who knows? Nevertheless, there are a few things which we, with the aid of common sense, perhaps may know after all.
The problem is that most governments look only as far as the voters before they shrink back and continue spending on the rich and mighty. Even in South Africa.
- Fin24
* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.
