There seems to be an unspoken global conspiracy that economists can predict the future. We can’t, but we’ve made a convincing case through the financial markets that we can. It’s a case that does not stand up to scrutiny.
In fact there is some research I’ve seen that shows that most economists forecasts are not only wrong, but that they are quite wide of the mark. Forecasting inflation is a particularly inaccurate pastime. And please let me know of more than two economists who saw the subprime crisis and its worldwide fallout coming.
So I approach the subject of oil prices with no confidence, but with a gut feel based on years of observing markets.
I think we’ve seen the top of the oil price for a while. It’s no longer $200 oil on the immediate horizon. It’s $100 oil. Then its down to maybe $60. Still high from the perspective of a few years ago, but welcome now.
The reason is: we are now seeing the slowdown in many of the world’s economy starting to bite and to bite quite hard. People are starting to thin seriously about oil alternatives, and about switching to smaller cars and to (shock, horror) public transport.
In the area I work in - economic development of a particular region in Australia close to a major city - we are seeing the first signs of major corporate relocation decisions being influenced by proximity to a decent-sized railway station.
All this points to lower demand. And moderately lower oil prices.
But, hey, I’m just an economist. I have no particular claim to know what the future holds than the next person.
The average person in the western world, and in many parts of the east as well, has been aware of the good times of the past 15 years through his or her home.
It has been an amazingly comforting ‘fact’ for many that their main asset - their house - has been steadily increasing in value. In some years we have even seen spectacular increases in value. We have been distracted from our annual profit and loss account - our income minus our expenditure - because all the while our main asset has been rising.
We have seen very many millionaires created by the value of their homes.
Now, perhaps, the tide has turned. We knew that, courtesy of the sub prime crisis and the general Bush-malaise, that US house prices are down by a large margin. In the past couple of months, we have had confirmation that the disease has spread.
The UK has been reeling under successive monthly falls in the price of houses. Now we see in Australia the same effect. For the first time since the 1930’s Depression, house prices in every region of the country have fallen.
This is scary territory. The whole paradigm of investment for half a generation has been to ‘get into property’ as a no lose investment. The whole paradigm of economic growth has been strongly growing retail sales, based on consumer confidence derived from ever higher valuations for the family home.
If residential property is no longer a safe bet a vital buttress underpinning consumer and investor behaviour in western economies has been brutally kicked away in less than a year.
This is uncharted territory. It is dangerous territory.
So the G8 ‘agrees’ to cut carbon emissions by 50% by 2050. They’ve also called on India and China to do the same.
I’m quite attracted to this idea. Let’s not worry about trying to get all the world’s states agreeing to a particular emission-cutting protocol yet. Let’s get the big boys to agree and then to ACT. Then the small fry can come on board, even if we need to exert some pressure.
But the way to do this is not to ask India and China to come aboard. There’s national pride at stake here. If India and China are so important - and they are - let’s invite them as full members of G8. What’s the downside? Uh, um, oh, I can’t think of one - unless it is that press photographers don’t have wide angle lens for the ‘leaders pics’.
So the plan should be - G10 agrees a global global warming protocol and implements it. It gives all other countries 5 years to sign up. If they don’t they face a ratcheting up exclusions from world trade markets.
Just do it.