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A stock market rout and probable recession: it could be worse.

December 5th, 2008 · Greg Atkinson · No Comments

There is not a lot of good economic news in circulation at the moment. Today for example I read that the Dubai real estate market is heading for a big fall, and so it seems one of the last pockets economic optimism is about to get that gloomy feeling. I guess this might mean the end of man made islands shaped like continents, so perhaps it is not all bad news.

But as bad as things are they could have been much worse. For example, how would have the world economy handled oil at $200 a barrel? It seems crazy now to think of oil prices being that high, but it was just a few months ago that many experts were quite confident that oil prices would keep heading up and the media was on the “Peak Oil” bandwagon. (see The simple guild to oil prices. )

Earlier this year we also had food prices heading up with soft commodities like wheat and corn at record high prices. We even had the “greenies” blaming biofuels for higher food prices, however as I pointed out in Food prices and biofuels there are larger issues affecting food production than the biofuels industry.

But just imagine if food prices did continue to soar…this combined with higher oil prices could have caused a major inflation problem and worse still, stirred up global tensions. People tend to get agitated if they cannot afford food and start looking for someone to blame.

Most people do not like to see share prices tumble or business activity slump, so I am not suggesting for minute that a recession is a good thing. However we do need to appreciate that a slowing global economy has brought commodities prices back to earth and this will over the longer term, help build a more sustainable base for future growth.

In addition the current crisis in the financial system is cleaning up some of the risky business practices that would have caused problems eventually anyway.

Although many commentators are currently equating risk taking with greed the two are not the same, and we should not be creating a business environment where any form of risk taking is frowned upon. Risk taking is hard wired into our DNA and pushes humankind to excel, unfortunately it also sometimes leads to bubbles, fraud and many other problems.

As Bilbo Baggins says “It is a dangerous business stepping outside your front door” so most of us are risk takers to some extent.

Unfortunately the slowdown in the Australian economy will result in job losses and many of these might have been avoid if the government and the RBA had acted earlier and more decisively.

But let’s hope that any downturn is as short as possible and that the government effectively deals with the problems Australia faces next year and more importantly, that team Obama can start to sort out the mess in the U.S as soon as possible.


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