Freeday 12 October 2001

Pic of the day: Gold and green forests. Heh. (Don't know if other languages has a similar expression, but "promising gold and green forests" roughly translates as "promising the moon". Making promises impossible to keep, as the song so aptly puts it.)

Norwegian politics

The Norwegian Nobel Committee has awarded the prestigious Peace Prize to the United Nations and its Secretary General Kofi Annan. Well, I guess he’s a nice enough guy, and doing the best he can. But I just feel that awarding a Nobel prize to the UN is … well, underkill. Kind of like giving God the Nobel price in chemistry for creating water. Sure, it is well deserved, but it doesn’t matter. It’s not like it will change anything. It is beneath notice for such an entity.

***

In more purely national news, the national budget has been made public. The current government is a minority cabinet by the Labor Party (social democrats), and is kind of a farewell gift from them. They were massacred (politically speaking only) in the election on September 10, an election that is later largely forgotten because of the Fall of the Towers. It is indeed remarkable how much Norway is a part of the US now. But as we get used to the war, local matters start to catch the public eye again. And foremost of these is the national budget. Since the state is part of so much of life here, it influences daily life in many different ways, not just taxes. But definitely taxes too.

The Labor government is keenly aware that it will have to leave its offices any day now, and has presented a budget that gives generously to many good causes, partly financed by the Petroleum Fund and partly by taxes on the industry. This way, the new government will be forced to take back gifts that the Labor has given to common people. As a commentator dryly put it: If they had done this before, they would not have lost the election in the first place.

The budget is clearly expansive, and they are not apologizing for it. On the contrary, the "events on September 11" – the common euphemism for the mass murder on American civilians – and the downturn in the world economy are cited as reasons to stimulate the economy. I agree. But I think it is too early to stimulate the Norwegian economy. And particularly, I think it is just plain wrong to stimulate consumption and state expenditure while choking industry and export.

Yes, I can see that Norway has a responsibility, at this time, to import rather than export. We are one of the very few countries that can safely do this, thanks to the Petroleum Fund and a generally strong economy. But we should take this more slowly. The personal and public consumption in Norway is already quite high, and people are borrowing more and more money for their reckless spending. This is not sustainable. By adding more fuel to the fire during a hectic shopping spree, we almost guarantee a sharp downturn. When things finally change, it will fall so much deeper because it has climbed so much higher. Better to hold back now, and pump the money in when people start to panic. Because they will panic. I live here, I know them. We may think that we are created a little bit more in God’s image than other nations, and that the economic laws don’t apply to us. But they will catch up with us anyway. And there will be panic, mass layoffs and much worry. That is a good time to add more fuel to the economy. Now is not.

Yes, like a male Cassandra I keep foretelling grim news, even though nobody believes me. Of course, you may say that almost any prophecy will be fulfilled if you wait long enough – even the sun will eventually stop shining. Yet, I did warn my American friends to not take their pay in stock options, and not max out their credit cards. I think that if any of them had listened, they would appreciate it by now. And the time will come for Norway too. The Invisible Hand will smite them … OK, basically the markets will re-balance themselves, but it will still be tough enough for those who see their money evaporate.

***

Actually, there is no need for a complete, destructive razing of the economy. The fundamental problem in western economies today is the share prices. These were ridiculously inflated, and are still well above normal. How did this happen, and how will it un-happen?

Originally, shares are just that: Parts of a company. When you own a share in a company, you have a voice (albeit a tiny one) in running it, and more important to most of us: You own that part of the profit. Traditionally, this profit was paid as a dividend to the owners. The owner could then use the money as they saw fit. And if they believed in the company, they might buy more shares in it. Conversely, if they saw other companies as more profitable, they might buy shares there. (For a practical introduction to this, I recommend the game RailRoad Tycoon.)

Rather than going to the investors every time they wanted to buy something, it was often more practical to use part of the profits for investment. This meant the owners got less dividends, but the value of each share would rise to reflect the higher value of the company. With a well functioning stock market, it was easy to take out this profit when needed by selling some of your shares. But the price of shares was not determined as easily as by dividing the asset value by the number of shares. The price also reflected the expectations of future earnings. This way, share pricing became less a science than an art, incomprehensible to the layman.

The fruit of this is what we harvest today. Share prices detached from real values and rose like some happy balloon, high above the real world of assets and earnings. The question is how to land this balloon without crashing. I have some faith in the central banks. I have very little faith in our politicians. Quite frankly, it seems to me that petty revenge is playing a role in current Norwegian politics. And that is an ugly sight indeed.