Too much optimism can be dangerous

The Swiss resort of Davos last week welcomed political and economic bigwigs from around the globe, who shared views on what lies ahead in the next 12 months.

The four-day World Economic Forum 2013 ended with a warning from Axel Weber, chairman of Swiss Bank UBS: "In my view the mood [at Davos] borders on complacency," Weber said. "The mood has been good … too good to be true."

Just as many speakers predicted that the worst of the financial crisis was over, as stock markets continued to rally this week, Weber said, "My fear is that 2013 will be a repeat of 2012." He said that last year also began well, with companies posting solid financial results, before markets became gripped by fear that Greece would topple out of the euro zone.

It is this kind of message that Thais must heed. Soothed by the fact that Thailand's economy made a strong recovery after the disastrous 2011 floods that caused over Bt1 trillion in damage, and by low interest rates and populist spending policies, many people have borrowed hugely over recent months. During July and September, hire-purchase loans for vehicles jumped by 33.6 per cent from the same period last year, while other personal loans also increased. Bank loans in December surged 16-17 per cent.

It's an open secret that many people have used their relatives' names to buy new cars, to benefit from a government tax rebate under the first-car buyer scheme. They get the indirect discount but they will still have to pay installments for years. I'm not really interested in the ongoing war of words that the first-car buyer scheme has led to worse traffic conditions in Bangkok. The fact is, now, when on the road, I have to avoid so many brand-new small cars as best as I can. Many of the buyers are delighted to be able to get their own vehicle, despite the added financial burden and the fact that they didn't know how to drive before. Some bought cars and then had driving lessons. With so many of them on the road at the same time, it's such a headache.

At electronics outlets, new phones are snapped up as if they were free. The situation is the same for electrical appliances. Big TVs are selling like hot cakes, particularly as many credit cards offer zero interest rates for a certain period.

Just imagine if one bought everything with a credit card. If you earn Bt50,000 a month, it's normal that the issuer bank will endorse credit of up to three months' salary. If you hold three cards, that means credit of Bt450,000. If all the credit is used up without interest, how can people finance all the debt within the zero-rate period? If things do not go as planned - like when a bonus is below expectation or when an annual pay hike is less than expected - you will be subject to penalty rates for remaining debt.

In any economy, it's the government's job to give hope to all citizens. As we are witnessing in Greece, economic activity will come to a standstill if citizens have no hope. If the unemployment rate in Thailand exceeds 20 per cent, that will be the case here.

Yet, too much optimism can also be disastrous. With many workers fretting about losing their job, as employers may have to cut costs due to the higher minimum wage, many salarymen are buoyed by optimism that the economy will perform well.

The Bank of Thailand just revised upward the economic forecast for this year, as the World Bank cut its global forecast. There is also optimism about big infrastructure spending, but a leading analyst at Standard and Poor's Ratings says the investment is not pursued "in a major way".

Globally, major economies are still in bad shape. True, US politicians will reach a deal on the debt ceiling before the end of February, to avoid defaults. But it remains a big question how the US will finance higher debts. As Weber fears, something bad may happen in the euro zone. Even Germany - the biggest economy in the zone - predicted 2013 growth at only 0.4 per cent. How long can nations afford to inject liquidity to keep their financial sectors afloat? The term "currency war" is resurfacing - as countries with huge inflows plan measures to slow down rapid currency appreciation.

At the World Economic Forum, Christine Lagarde, managing director of the International Monetary Fund, was also cautious, describing recovery as "fragile and timid".

Optimism is good, but Buddhist teaching says that you have to be cautious. Even when you are happy, you need to know that the good feeling won't last forever. It is not good at all if optimism is based on external factors.

UN Secretary-General Ban Ki-moon was right to say at the WEF: "As a boy, I studied in the dirt. There was no classroom. Education made me what I am, it made my dream come true. I shared my message with refugee children: don't lose hope, study hard. I did it, you can do it too."

That kind of optimism inspires people to do something for a better life. It's different from the kind of optimism that lures people to believe that life will definitely be better even in the absence of effort.