WASHINGTON DIARY: More of the same
by Dr Manzur Ejaz, USA
Courtesy: Wichaar.com, June 16th, 2009
Even if the civil war is taken care of and political stability is achieved, the economic disaster will be far from over. The spike in oil prices during the last three months indicates that world markets are still being manipulated by speculators. Similar economic irrationality is prevalent in Pakistan where political and economic conditions do not support the going real restate prices or the rise of the stock market.
Oil price has been going up despite the fact that the international market has excessive supply. Therefore, economic linkage between supply and demand cannot explain the situation. Some behavioral economists call this irrational economic decision-making. However, if one looks at it from finance capital’s angle, the decisions are perfectly rational because supply or demand of a commodity (oil, wheat, gold, etc.) does not determine the price, but the amount of finances available. If the amount of money available for future markets is higher, the prices of targeted commodities will go up.
It is quite obvious that international markets are completely in the grip of finance capital. The prices of almost all commodities are manipulated through the speculation of future markets. Speculative finance has been causing bubbles in economies around the world, particularly in the United States, the center of such a large pool of money. The stock market, real estate and commodities have gone through speculative bubbles and sudden crashes.
Ultimately, the world economies, led by the United States, went into a tailspin. The ongoing impoverishment of the US economy is deepening where unemployment has reached levels not seen in the last twenty-five years.
It appears that, in order to revive the economy, the Obama administration has pumped in a great amount of money. However, most of the money has been spent to sustain the same elements that were behind this great economic disaster. The reemergence of speculation in oil and to some extent in the real estate market shows that no one has learnt the real lessons and that the US and the world economy is heading towards another disaster.
One can see similar trends in Pakistan: civil war-like conditions, at least in one part of the country; electricity load shedding, which is debilitating a large part of the industrial sector; and shrinking irrigation water supply, which is hampering the agricultural sector, do not support real estate prices.
The Pakistani government’s figures simply do not match the economic reality. The government has acknowledged that growth in the industrial sector has been negative in the last year. However, it also claims that growth in the agricultural sector has not only compensated for the contraction in the industrial sector, but has contributed so much that overall economic growth was two percent of GDP. This assertion is illogical.
Water is the key input in the agricultural sector of Pakistan. Land is irrigated either through river water or through tube-wells. The supply of canal water has been declining over the last few years and tube-wells cannot perform with recurrent electricity load shedding and unusually high power prices. Therefore, there is no way that the agricultural sector could keep up its growth or make up for the losses in industrial sector. As a matter of fact the small industrial sector, a large part of production, has been hit so hard that the losses cannot be compensated.
Despite all the negative factors, real estate prices and stocks have been either rising or holding up well. The declining income levels of the middle class and rising poverty levels do not correspond to economic reality. This simply means that the financial sector, formal and informal, is awash with plenty of speculative money, which is determining price levels.
The basic economic reality in the US, Pakistan and in other parts of world is skewed income distribution, where the upper classes have accumulated unprecedented levels of wealth while the rest of the population has lost ground. Excessively wealthy rich classes cannot resist betting their money in speculation while the masses are helpless to stop such a trend. Even world leaders like Barack Obama, coming into office on popular slogans, are trapped by these interests and have ended up playing their game. Pakistan, where the governing classes are extremely dismissive of people’s interests, has not seen a change in the practice of safeguarding the wealthy at the expense of the poor.
In the new budget, the taxes levied by the government indicate that old failed economic policies will be continued. Ultimately, most taxes are going to be shifted to the poor masses and their economic situation will further deteriorate. Therefore, even if the civil war is taken care of and political stability is achieved, the economic disaster will be far from over.
The writer can be reached at firstname.lastname@example.org