I followed up China's foreign reserves - what they mean, what might happen with a post on my personal blog, Australia's economic fragmentation. Since then we have had the ending of the US debt crisis, new troubles in Europe, bad US economic data and something of a stock market crash. In the first minutes of trading this morning, falls slashed $A56 billion of the value of Australian stocks. There is a smell of panic in the air.
All this took my thoughts in a different direction, one that may seem a bit odd. One problem now is that many of those involved whether as commentators or traders, those trying to decide how to respond, actually lack the broad based experience required to respond sensibly. Further, they live in a wired twenty four hour world where initial responses feed on each other, where reporting heightens nervous excitement.
My original qualifications were in history and economics. Then I worked for twenty years as a professional economist and economic adviser before moving into the private sector as a strategic consultant and manager of professional services firms. I no longer claim to be a professional economist - the profession has moved on. In a way, the economics of finance has replaced the economics of economics, financial modelling has replaced a focus on economic principles.
I was in Shanghai when the Global Financial crisis struck. I watched it unfold on the television screens. Upon my return to Australia, I was struck by the fevered nature of reporting. Australian reactions just did not seem to match what I understood of the fundamentals affecting the Australian economic performance. I was actually drawn back into my past world as an economist.
The analysis that I did then suggested that, so far as Australia was concerned, the GFC was highly unlikely to have the type of catastrophic results forecast. It just wasn't going to happen. I said so, and I was right.
One thing that I have learned from my experience is the importance of time. There is a fundamental disconnect between most current analysis on the economy and the actual lengths of time involved in economic processes. For example, just as it takes time for economic imbalances to emerge, so it takes time for them to unwind. In similar vein, it takes time for new policy initiatives to work, especially where capital investment is involved.
In 1929, the effective closure of the London capital markets to Australian borrowings plunged Australian Governments into effective depression. In similar vein, the GFC had very real world affects. Yet it pays to stand back and look. You do not need complicated models to understand what is happening, nor do ideological positions help.
Economics is about relationships. If you are going to understand what is happening, you have to look at the relationships in general and as they affect your sector. One of the reasons why I have such a high opinion of Australia's Reserve Bank lies in the standard of their analysis of relationships. I may not agree with their analysis, but I can understand it and therefore respond to it. That is not true for a lot of the other analysis I have seen.
I am not sure why we have come to so distrust general skills and broad based experience, why we now place so much weight on narrow specialisation and very task specific requirements. You see, the problem is that narrow specialisations with task specific requirements are very good at getting things done within defined parameters, but hopeless at coping if those parameters change. Then everybody is at sea, lost without a paddle or, sometimes, even the boat.
I know that I sound jaundiced, but today we have managers who have never managed, economists who know a lot about a little but very little about a lot, lawyers whose knowledge is largely limited to a narrow specialisation, policy advisers who see their key roles in terms of narrowly defined statistical outputs. It's all very odd.
While I have been writing this post, share prices have continued to decline. Time, I think, to stand back and look at what is really going on.