Friday, April 3, 2009
SATYAJIT DAS Q&A transcript..
From News Kontent:
SATYAJIT DAS: Well, I think, fundamentally, you have to decide whether we live in a global world, whether we trade with people and we treat everybody alike. Clausewitz, the famous German strategic thinker, once said that countries have no friends, they just have interests. We have certain interests and we need to live within them. And at the one side we cannot be promoting global trade, global capital flows and then the moment somebody wants to buy anything we're "No. No. No. No. No. You can't have that. So we've got to be very clear about that." And at the one side we have to allow global capital flows, because in this period we need to go through a huge adjustment in the world where people have to keep buying debt to enable us to spend to recapitalise our banks, so we have to swallow some national pride in that process, and that's inevitable. And just because they're Chinese or Russian or Japanese is not the issue. Do they have the money, I suppose, is what it boils down to, at the end of the day.
SATYAJIT DAS: Fundamentally - fundamentally I think there's a real problem in the world, and the problem has nothing to do with the debate between neo-liberalism and conservative socialism or compassionate socialism, whatever it is.
The problem is the world has lived in a particular era of history where we've used two things very unwisely. One is debt to grow the economy and the other is carbon emissions, because we haven't properly costed carbon emissions.
The entire growth of the world for the last 30 or 40 or 50 years has been driven by these two factors, and that's coming to an end, and what I find disappointing about Kevin Rudd's debate and, indeed, the Opposition's debate, is they still want to rely on a world of high growth. What this is telling us is that growth is coming to an end and now we have, to pick up the second point, the G20, which is - you know, every business has junkets.
This is just a junket. I mean, we're going to have, basically, what I call a summit led recovery because we have one every week. But essentially these are the people who are part of the problem because they have relied on these growth models for a very, very long period of time and we are now asking them to solve the problem and out of the G20 will come motherhood statements like, "No trade protectionism" and what will happen is, when everybody goes home, trade protectionism, capital protection, will come in, because that's what happened out of the last meeting.
I think fundamentally we need to sit down and look at the way the world is structured economically and debate that in a rational way, and I don't see the G20 doing that. I mean they're meeting for four and a half hours, for God sake, about a communiqué that's already been written. What are they going to decide? And Nicolas Sarkozy has already gone home.
SATYAJIT DAS: Well, I think you rebuild it in terms of trying to understand three things. There are two steps, I think. First is immediate. What do we have to do? We have to get the banking system sorted. The second is, look, governments have to spend money. They lean against the wind in these sort of situations. They will spend that but we've got to get that properly financed. In other words the governments have to issue debt to raise that and we've got to have an orderly process for doing that and that, I hate to say that, involves drawing China into this, Japan into this, because they're where the money is sitting. And the last thing we've got to do is look longer term at what the levels of growth are. I think the level of growth in the world that we'll see is much lower than we've seen. That has huge consequences for unemployment, for social unrest - all of those types of things. We need to debate that instead of essentially, as you've correctly pointed out, relying on the hair of the dog cure, which is, you know, let's give the alcoholic one last drink and it will all be fine tomorrow. And what one of the things there is: people have enormous common sense and they obey price signals. Consumers in Australia aren't spending. Why are they not spending? They've realised they've been living beyond their means, so they're adjusting their behaviour so it's possible, but the leadership is sorely lacking.
SATYAJIT DAS: Well, I think the solution, I think fundamentally, is recognition that the level of debt in the world has to come down. That's the end of the story. And at the moment the government - and there are political issues here. You want to get re-elected and, I hate to say this, but if you're in the great recession or whatever we're called now, or the great depression, you don't get re-elected very often. So there is a desire to keep growth going. And we all know Ponzi games or pyramid schemes are only bad if they stop, so the whole idea is can we keep it going for a little bit longer. So I fundamentally challenge that, and I don't see any of the steps that have been taken fundamentally address each of those things. And I'll be very honest. I don't have all the answers. They're difficult things, but at least we need to address them and we are not going about it the right way. That's my problem.
SATYAJIT DAS: To some extent I think that's the case. I think part of it is to cushion people who are going to be hurt very badly by it, and I think that's very laudable. But part of it, I think, essentially addresses the wrong problems. The infrastructure tries to address what I call the supply side of the equation. It is the - not the demand side, which is what people are buying, it's the capacity to make things. I think that's the wrong part. The other fundamental thing - I always equate this to like a gigantic bushfire. Bushfires burn themselves out. You don't put them out. All you can do is put a ring around it, try to protect it, and I think that's what he should have been focussing on. The other fundamental problem I have with all these actions is there's a huge myth, which affects both Tanya and George and anybody else in politics, is we've built a myth that politicians, central bankers, economists, can control this magnificent machine. We haven't got a clue. Let's be honest. I haven't got a clue. And we pull all these levers and we're like the wizard in the Wizard of Oz. You know, this old guy behind, pulling some levers, and we're hoping to hell it's worked. For the last 20 years it worked simply because of a coincidence of circumstances and this is why I called the model "built to fail". It was always going to fail and what the politicians, to some extent, are struggling with the fact that their influence is much less than they thought it was.
SATYAJIT DAS: Well, I think, fundamentally, I think you need to go back a little bit in history. George Bush, I hate to say this Tanya, was a great advocate of housing, as well, because he thought it was part of citizenship and he encouraged the boom, which we've now seen unwind with disastrous consequences. What I worry about is that if you put such a large amount of money into housing through those grants, effectively people can buy houses at 5 per cent down and lenders, essentially...
TANYA PLIBERSEK: But...
SATYAJIT DAS: Let me just finish.
TANYA PLIBERSEK: Mm.
SATYAJIT DAS: Lenders - basically under those circumstances, I think most of them are principled. Most of them look at the actual numbers to see whether they can service them, but at the margin there's going to be problems, and we don't need much of that to go wrong, and that's what I worry about. I'm not saying that's happened. That's what I worry about.
SATYAJIT DAS: Fundamentally there's some very simple rules in economics. The private sector, the corporate sector, is a very large part of the economy. The government cannot replace them and the government is trying to replace them, and that's not going to work. And the other thing is we have what we call a multiplier in the economy. Every dollar spent just goes around and around and the quicker it goes around, the better. The problem is there's two things that are broken. One is private sector spending effectively has much greater multiplier effects; and the second thing is the banking system needs to work, and both of those conditions are not working so, in fact, the treasury estimates, I think, are close to being on the mark in the sense of not going around. I just want to pick up on one thing, though, that George said which irks me enormously about the wondrous state of Australian regulation. Basically it's because Australian banks were so boring, they missed the bus. That's basically what happened. So essentially I'm not sure that it was all that regulatory - and he obviously deals with a different set of regulators to the one I deal with and it's completely different.
TONY JONES: Let's hear from Das. You've put a lot of thought into this. I mean one of the things you say is that we're going through a process of grieving for what we once had.
SATYAJIT DAS: Some of you will know the work of Elisabeth Kubler-Ross and there were five stages of grieving. The first stage is denial; the second is anger; the third is bargaining - trying to find a solution; the fourth is depression. Not an economic one, because I'm not allowed to say that, just depression; and the last is acceptance. The world is not going to end. The sun is still going to come up and things will get better. It's just going to take time. But we are, I'm sorry to say, at denial and anger rather than at the other end of the chain at the moment.
Posted by Troy Ounce at 4:58:00 PM