Now is a time that reminds us of the story of Sisyphus, the Corinth king who was condemned to push a boulder up the steep hill only to see it roll back down. Gods, as the story goes, had punished Sisyphus with pushing the boulder for being crafty and for having hubris of being cleverer than them. Ideological hubris and political craftiness in Western countries was responsible for the 2008 recession and they continue to threaten recovery and another slip into recession. If the double-dip recession hits, Asian countries might be more seriously affected this time.
The 2008 recession was the worst after the Great Depression of the 1930s, but the two share striking similarities. In both cases, bank failures and stock market crash brought down the economy on its knees and people lost jobs, homes and trillion dollars of investment by today’s standards. In both cases, high indebtedness was one of the principle causes of the problem. In both cases, policymakers aggravated the crisis and prolonged its duration by making wrong policy choice based on ideological preference and political manipulation at the cost of support and justice that ordinary people who have lost jobs and homes so urgently need.
Business cycles have as much economic reasons as politico-ideological reasons. From the economic angle, a recession occurs when consumer demand fails to keep up with the supply of goods and services and the economy contracts for two consecutive quarters. Conversely, a boom comes along when sustained consumer demand encourages investors to invest in setting up new firms and expanding the existing facilities to cope with such demand. Overconfidence in the economy leads investors to make imprudent investments that lead to collapse. Business cycle recurs because every time it could be a new sector leading the drive into a recession and because of greed of investors, dereliction of oversight duties by public regulatory officials and politico-business nexus.
For instance, the 2008 recession hit Western economies when the housing bubble built with subprime housing loan burst and the US stock market collapsed in its wake. Banks had invested in housing without considering the borrowers’ capacity to pay and sold the securitized subprime loans to investors who wanted to have a piece of the housing pie. The contagion spread to much of Western Europe which was also heavily exposed to the US subprime loans. Similarly, irrationally exuberant investment in the IT sector had cause the dot.com crash in the 1990s.
Politics and ideology factors had contributed to the 2008 recession and they continue to stall the recovery threatening to send the Western economies into a double-dip recession. US President Bush converted the budget surplus he had inherited into the largest budget deficit by embracing the hard line Republican dogma that deregulation and tax cuts increase revenue and spur growth. Banks used the deregulation to make subprime housing loans, sell securitize and sell such loans as AAA financial instruments to beef up their bottom line and bonus, and cause the recession. President Bush’s tax cuts and wars in Afghanistan and Iraq wreaked havoc on the US public debt.
Western economies are struggling to recover from the recession mainly due to political and ideological reasons as well. Hijacked by the Tea Party movement, the Republican Party in the US that controls the lower house has insisted on balancing the book by cutting spending without raising taxes or retiring the Bush tax cuts at a time when the economy needs short-term stimulus to create jobs. In the United Kingdom, the Conservative Party has been implementing a severe austerity program to reduce deficit that has jeopardized the recovery and threatened a double-dip recession. Keynes would have certainly disproved the austerity measures of the present Tory-LibDem government at this time. Greed, excesses and collapse in housing market have also sunk Ireland, Greece and Portugal endangering the viability of the Euro as a common currency.
The 2008 recession had left most of Asia only marginally affected, but Asia might not be so lucky if a double-dip recession were to afflict Western countries. Brics – Brazil, Russia, India and China – continued to log impressive economic growth, though slightly decelerated, during the recession, and they have accumulated huge reserves to stimulate their economies because of still manageable public debt. However, if Western markets dry up for their goods, Brics might be in deep economic hole as well. That will affect smaller countries like Nepal in Asia and elsewhere.
Nepal’s situation is rather precarious. It has enormous tourism and hydropower potential, but these resources are yet to be optimally tapped for the country’s benefits. The decade-long insurgency has left the country weak, destroyed schools, bridges, communication links and hospitals. Now that the peace is restored, the sister organization of the Maoists, and occasionally other organizations, as well have been making it difficult to run businesses and operate factories regularly. The ultra-left ideology is as bad as the ultra-right dogma for the Nepali economy.
Western economies have become Sisyphus’s boulder because the Sisyphuss have paraded their greed and ideologies against the short-term stimulus necessary at such difficult times.
Published in Republica of 24 October 2011