Don Pittis

If you have been watching the markets climb to post-crash highs over the past months, the latest job numbers, especially the 26-year unemployment high in the U.S. that we saw at the end of last week may have come as a shock. Optimists say the markets are predicting what's going to happen next, but sometimes that isn't reliable.

Late this summer, during a patrol of neighbourhood garage sales, I happened to pick up Rory Stewart's book about his walk across Afghanistan. It was the best dollar I've spent in a long time. And it was one of those occasions when a coincidence brings you two bits of information that teach you so much more than either one alone.

Stewart, who would be in danger of being a British upper-class twit if he didn't speak a variety of Asian dialects and write so concisely, hiked from Herat in the west to Kabul in the east only a few months after the Americans and British invaded Afghanistan. He carried nothing but a staff to drive off wolves and a few meagre possessions in a backpack.

Stewart's hike across the recent war zone happened just as Western governments were beginning to see the light at the end of the tunnel. The Taliban had been defeated, a few more troops were being sent in, and elections were underway for a new democratic government that would pull the nation together.

Just after racing through the book, which turned out to be a non-fiction page-turner, my copy of The Economist plopped through the mail slot. Its cover story was about how the allied effort in Afghanistan is on the verge of failure.

It was as if everything Stewart had predicted in his book had come true. Even as he was compiling his notes into this unlikely bestseller, Stewart was skeptical that the invasion would succeed in yanking the country out of chaos. There was just too much chaos.

Stewart had created a wonderful background for The Economist's gloomy journalism. In his book, you met the Afghan people — intolerant, xenophobic, fractured into different warring sub-nationalities, parties and classes. They held grudges not just against the Russians and the Taliban, but ones that could be traced back to the invasion of Genghis Khan. Many were generous and funny, but after repeated invasions, massacres and vendettas, they seemed permanently prepared for violence. And, to the way of thinking of a literate westerner, their world view was violently incomprehensible.

No quick fix

The picture Stewart painted was that wars, like economies, are complex things that arise over decades. As much as we'd like to fix them quickly, with a few simple applications of soldiers or money or Western-backed elections, it just can't happen. That is not how complex social systems work.

As I read, it struck me that something similar is happening in the world economy. We have been watching gigantic changes happen — the growing might of China, companies from India and Brazil now owning rich-country brand names like Rover and Inco, U.S. consumers and their government horribly overspent, rich country banks that are a mess and desperately trying to reorganize themselves.

Markets are mercurial. Aided by computers, money is made by moving quickly. The old joke is that if you and your friend are being chased by a bear, you don't have to be quicker than the bear, just quicker than your friend. That's how markets work.

As a system, markets are like people running from side to side in a boat, or carrying a pan of water. Changes happen quickly and compound upon themselves.

Predicting the future

There's a rule of thumb that markets are supposed to predict what is coming next — maybe six months in the future.

By those lights, this summer, which is six months after the depths of the stock market's March collapse, the economy should have been very bleak indeed. And six months from now, things should be looking up, especially here in Canada.

But there is another way of looking at the relationship between markets and the economy. That is that they are creatures of different worlds. One, like the high school popularity contest for "most likely to succeed." The other, the plodding actual result where the pimply nerd builds a software company and gets the girl.

Economic crises, like foreign war zones, do not always go the way the short-term planners hope. The Americans have sent in their stimulus money, their cash for clunkers. They've patched up the banks and borrowed their billions. Many have proclaimed the light at the end of the tunnel. But in economic crises, you must keep your eye on the details and listen to the skeptics.

The chaos of the world economy is not as dire as the picture painted by Stewart in Afghanistan, thank goodness. But as I read it, his lesson applies. In solving great problems, there is no substitute for patience.

Don Pittis has reported on business for Radio Hong Kong, the BBC and the CBC.