Questionable assumptions about the impact of war and deflation on the global economy.

Read another article, this one in the Guardian stating that war in Iraq will cause problems in the global economy. As always, this is mostly based on assuming that future events will be the same as former ones, in this case, attributing earlier recessions to fluctuations in oil prices caused by uncertainty in the Middle East.

This may have been true before, but there's one factor that doesn't seem to be considered. Namely, that the technology for alternative energy sources has taken an enormous leap forward in the last ten years, and that, unlike previous times, it is now a viable alternative to oil. So it's entirely possible that any serious, lasting disruptions in the world's oil supply may not result in an economic slowdown, but rather in a boom propelled by a new generation of alternative energy start-ups. Of course, this is dependent, at least to a certain degree, on market forces being allowed to operate. That is, if oil prices start to rise, governments not attempting to control them but rather to let them rise enough to encourage alternative sources to compete. And once they begin to compete, allowing them to continue to grow as they become more and more self-sufficient. And it's unlikely this will happen given the degree and extent to which the US government (and others) are interwoven with the oil industry.

Another questionable assumption in this article is that deflation is an economic problem. "Deflation is a much bigger threat to the west than Saddam will ever be..." Huh??? It may be of course, but I don't think that's as automatic as many economists seem to think. Deflation is basically a rich man's disease. I mean, it affects everyone, but mostly it affects those who have quantities of money that could decline in value. For most of us, defaltion means things are cheaper, which is usually a good thing. I mean, when I go to the store and find things have come down in prices, I'm hardly ever upset. :)

And yet another questionable assumption in this article is that the health of the global economy is still tied to the health of the American (and European) economies. Again, based mostly on the premise that because something was true in the past it will be true in the future. But I feel that the weaknesses in these areas could just as well encourage other economies, not harm them. For instance, the decline in the economic value and power of American corporations in the last year, has made it possible, for the first time in a long time, for companies from other countries to compete. And more importantly, to be seen as just as good a potential investment, if not better, than American corporations.

As always, the "West" (whatever that is) likes to think that's what's good for them, is good for the world. A convenient assumption, but one that is simply no longer so. And these reports of a "global recession" are simply not true. In point of fact, the global economy has continued to grow during the last few years, as it has every year since the end of World War II. It's just that the growth is now being generated by countries such as India, China and Russia, as well as by smaller countries such as Ireland, Finland and so on, all of whom are still doing rather well.

---