Amid all the depressing economic news this past week, a curious story about a scientific experiment at the International Space Station stood out.
It turns out that spiders can construct webs in zero gravity. According to the news item, spiders sent to the space station were initially a bit confused and disoriented upon their arrival, and their first attempts at building webs were messy affairs. But after a few days, the spiders adjusted to their new environment and figured out how to build organized, symmetrical webs. Amazing!
There are lessons here for us back on Earth. Our economy has lost its moorings. Nothing seems certain any more. Markets spike up and (mostly) down, currencies move wildly on fears and rumours, and commodity prices gyrate with no apparent reason. Never in our lifetime has the world of economics seemed more confused and disoriented; like the little arachnids in space, we've lost our gravity.
As the spiders probably thought, a lot of businesses and individuals are thinking, "I don't like this at all. When will things return to normal?" But as days of turmoil have turned into weeks, and weeks into months, we have to face the reality that "normal" is not coming back.
The spiders had a couple of choices. They could have just curled up and died, drifting off as random bits of carbon suspended in a zero-gravity purgatory. Alternately, they could have organized themselves, marched up to the astronauts in the space station, and demanded that gravity be restored. They'd threaten to die, persuading the astronauts that it would be a public-relations nightmare to return to Earth with a shuttle full of dead spiders. (Think of how the school children would react!)
But the spiders chose a third option, and that was to just get on with it. It's true that spider brains are not too complex, so they didn't over-think their options. They build webs, gravity or no gravity. It's in their DNA.
So, now that the Canadian economy is foundering in a zero-gravity economy, what are our options?
Curling up and dying is one option, and a lot of poorly managed and over-leveraged businesses will have no choice but to do so. Demanding bailouts and stimulation packages from governments is also an option, akin to the spiders demanding that their gravity be restored. But it's not likely to work, and even if it does, it will be temporary.
The third option, like the path chosen by the spiders, is to just get on with building our webs. It will be tricky, of course, because everything has changed.
One of the most significant changes noticeable in the "new" economy is the lack of available credit. For many companies, credit is as central to their operations as oxygen is to the human body, or as gravity would seemingly be to building webs. Will tight credit be the new norm? And what are the implications for those businesses and households that have become overly accustomed to cheap and inexhaustible amounts of credit?
Another sign of change is the weakening global economy and the new possibilities of deflation gripping the economy. Deflation can lead to a vicious downward spiral of falling asset prices, falling wages, falling prices, and falling profits. How can corporations manage in this kind of environment? How do individual households make reasoned decisions about their purchases? How do bankers make reasoned judgments about creditworthiness? Is it possible to turn a profit with deflation?
These are sobering questions, and our immediate response is typically to turn to the astronauts (i.e., the government) to do something.
Governments do have some tools at their disposal, such as loosening monetary policy, stimulative spending and financial aid to particular sectors. But we have to concede that their powers are limited, and in some cases they are ill advised.
The good news is that the spiders didn't need to become different creatures. They didn't become vegetarians, they didn't become butterflies - they were still spiders and they still spun webs.
Businesses, too, don't need to morph into something different - they just need to adjust their business plan to a totally different environment.
The spiders adapted to zero-gravity. Now, can Canadian businesses?
The opinions are Mr. Hirsch's own.