Wednesday, March 4, 2009

Business as usual and the distortion of time

Three days has passed since the informal EU summit at Sunday, an event in a series of meetings aiming to find solutions for the effects of the crisis. ECE is "dead again" or more precisely its leaders once again proved that they are not aware of the similarities in the region (or prefer to emphasize the differences) and ready to seek shelter at the expense of the others. (Irony was not missing once again, at least retrospectively. The Estonian premier was egaer to point out in how good conditions his country is, while two days later the Statistiocal Office published an almost 27% year on year drop of the industrial output.) Surprisingly the German chancellor shared their view as well, dismissing any idea of a common rescue package.

Although there were voices disappointed with the outcome of the summit, the news in Hungary soon became a means of hammering the prime minister, as it was considered as a heavy defeat for him, who earlier championed the idea of a 180 billion euro aid action before the meeting. As a result Hungary again was portrayed as the "sick man", "analysts" suddenly started to spread rumours on negative expectations and even the usual "misunderstanding" happaned again today. Some time ago the prestigeous Bloomberg translated a sentence of the prime minister incorrectly causing panic among "investors". Today the Hungarian agency for overseeing the financial markets misteriously was left out from a common statement of such authorities in ECE, pointing out the negative effects of unfounded allegations regarding the situation of banks in the region and emphasizing the differences in the situation of the countries. It was soon interpreted as a gesture of dissociation from Hungary, as if its situation would be the only problem in the region. Hungarian forint suddenly fell while other currencies in the region became stronger against euro. A choir of "experts" and "analysts" in Hungary were ready to hail the idea of dissociation, portraying Hungary as a country not able to grasp the severity of the situation and prophesizing that Europe will leave this state alone as it is not ready to bring about the necessary changes. The opposite trend of the ECE currencies while during trade hours today was immediately interpreted as a turn in the events, the markets at last realizing that only Hungary has problems and that only thi country is not willing to adapt itself to the needs of the moment. One "expert" (well, he is a model figure, general director of local investment funds of a multinational company, whose funds performed rather mediocry last year even though this genius - who two weeks after the fall of the Lehman Brothers issued a statement, that we were over the worst, the markets would calm down and 2009 would be a year of moderate growth - is in charge), this expert even interpreted Obama's remark consisting the names of Hungary and Ukraine as a diplomatic message to Hungary, expressing the opinion that Hungary flawed its economic policy.

It is not easy to retain even just a small fraction of composure in the light of those developments. I would admit that in the short run it could be a profitable tactics to portray every country in ECE as different ones, and buy yourself out from this mess at the expense of the others. (Although I'm henceforward inclined to think that any kind of failure in the region would eventually lead to the collapse of other countries, as "investor's" hands are shaky.) But even not to consider whether the crisis revealed more substantial factors behind the situatation than the simple malevolence of some obscure outer world full of bankers and speculants driven by thirst for profit and the bluntness of some millions of Americans making unbearable debts, that's something I would consider intellectual laziness. The more because it is a challenging problem, more challenging than posing as "experts" while only selling others ideas.

But another important problem, revealed by these events and opinions, regarding also the situation of ECE is the concept of economic and social time. (I mean the time necessary for profound transformations, long-run processes, evaluation of success or failure and time inherent in business and economic cycles etc.) As I mentioned in one of the earlier posts, in the transition period (not even finished today) one of the important issues was the time necessary for the catch up. It was always evaluated to be digestible (10-15 years), therefore no one was ready to admit that

a, he/she has no idea


b, it will last for many decades and many people (obviously voters at the next election) won't have a chance to experience it.

Economists, considered to be serious academics supported this assupmtion and began to evaluate definitive success of one country, and failure of the other in terms of economic preformance in one, two or three years at the best. They were even not ready to consider the possibility of changes in economic or social policy in this time span in the respective countries, not to speak of the horrifying perspective that growth is not necessarily self-sustaining, circumstances can be changed with the time and so on. Instead of making thorough analyses, using historical comparison based on data and facts they simply assumed that two or three good years are the sign of perennial economic success and two or three bad years prove that the respective country is doomed. The real time span of convergence - historically decades - were rejected, economic time was significantly distorted.

This fact in itself would have been enough to make a weird perception of economic time - either unrealistic or not in line with the peculiarities of economic history - dominant. But the situation was worsened by the emergence of brokers and "analysts" as "experts" and "economists". They were used to mesuring economic events and processes in days or in weeks at best and very often in hours. So-called economic websites and following their example others as well, began to provide news of the "fall" or "rise" of the currencies based on one or two trading hours. One can wake up with the news that forint collapsed or was "hit" and go to sleep with forint risen incredibly against euro or dollar. The same was true for the stock market as well. (For example as I'm writing this post forint regained today's losses completly and taking into account the primary cause of today's fall this is a similar performance to the other currencies today. I won't forecast that this trend will be continued or not as I'm not capable to do it, moreover, I think it is pointless, as the long run is more important. But if I were an "analyst", at the moment I would be completly justified to say that forint is moving in line with the regional trend.) As this is the dominant economic news, the perception of economic trends in general was transformed accordingly. Today every "expert" can forecast decades of economic develpoment from the events of the first few minutes at the markets.

How is this phenomenon connected to the problem of ECE? As I tried to outline earlier, ECE is perceived as a bunch of competing country's, front runners and laggers. But because of the distortion of economic (and historical) time, success is not estimated according to the necessary time span, but based on short term performance, not taking into account other factors. Therefore possible similarities, having their effects in the long run, are obscured by short term differences. Moreover, non-economic factors, like the necesity of a kind of social consensus expressed through the results of elections, possible changes in the demands of the electorate influencing economic policies are also erased from the model. This is not the perception of time necessary to operate democratic procedures, but the perception of time of enlightened absolutism, as democratic governments never will have enough time to act if they are judged based on one or two days movements on the markets.

Well, there is some hope. Obama, at the press conference cited above, made a remark, that he wouldn't adapt his action to the daily ups and downs of the stock exchange indices, rather he is willing to concentrate on long term objectives. He even made an analogy with the tracking polls in politics, expressing his opinion - ceratinly based on some experience - that the politician who acts according to daily movements in polls will lost the strategical objective. This part of the press conference obviosuly wasn't mentiond by our "expert".

P.S.: Something on today's events... and on similarities, differences.

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