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BY CONSTANTIN VAYENAS
In one form or another, Aesop's tale of the ant and the cricket, with its hard lessons about the rewards of thrift and improvidence, is well known. The carefree cricket sings the whole summer long, putting nothing aside for the winter, while the hardworking ant labors tirelessly to build up an ample store of food. When winter takes hold, the starving cricket begs its neighbor for food and the ant replies, "You sang through the summer; now you can dance through the winter!" (Disney's version was kinder.) The moral of this story is clear: the frugal are rewarded, the profligate punished.
In what passes for economic commentary in some quarters today, especially from those pundits who question the economic model of the past twenty-five years or so, the spirit of Aesop's fable is often invoked. Like the singing cricket, the argument goes, the economies of US and the UK and some others only generated "virtual" products in wispy endeavors like financial services or entertainment. And they did not save for the inevitable hard times. Thus it is no surprise they are in big trouble, because winter has arrived in form of a chilling financial crisis. This view is often expressed with varying degrees of that lovely German word, "Schadenfreude," the enjoyment of someone else's pain.
Ant nations would be those frugal and industrious countries that manufactured "real" stuff, like cars and flat screens. Germany, Japan or China come to mind. Having saved for hard times, they should now be able to seriously outperform the crickets.
However, here is where modern economic reality departs from ancient fable. Many manufacturing nations have suffered more than the US or the UK in the global recession. As the recession has deepened, unemployment among the ants has risen at an even faster pace. And we should remember: the ants could only prosper because the crickets consumed their manufactured goods. Now that the crickets have rediscovered the "virtue" of saving, the ants are faced with crumbling demand for their goods.
The governments and central banks of many cricket nations are borrowing, printing and spending huge sums to prevent the global economy from sliding into depression. And some ant nations have also put aside their frugal ways, understanding that having saved for bad times, now is the time to release their stored wealth. But they are still some governments, especially in continental Europe, who remain "antsy" about taking this step. Their mindset remains close to Aesop's: the crickets caused the crisis so they can sing for their supper. This attitude ignores the fact that the model only works if crickets have the money to buy the ants' output.
The economic moral of Aesop's fable should be re-written. Not only do we prefer understanding, compassion and cooperation to self-righteous posturing; the latter is simply self-destructive. The ant cannot afford to let the cricket dance (and die) in winter. We got into this mess together and that is the only way we will get out of it.
Dr. Constantin Vayenas is Head of Emerging Market Research at UBS Wealth Management Research.
