Wednesday, July 07, 2010

great depression looms

Mainstream economists Ambrose Evans-Pritchard (Telegraph) and Paul Krugman (New York Times) are now saying we are heading for a version of another Great Depression.
Investors are starting to chew over the awful possibility that America's recovery will stall just as Asia hits the buffers. China's manufacturing index has been falling since January, with a downward lurch in June to 50.4, just above the break-even line of 50. Momentum seems to be flagging everywhere, whether in Australian building permits, Turkish exports, or Japanese industrial output.
- Ambrose Evans-Pritchard
There is a difference of ruling class opinion about how to deal with the ongoing economic crisis, either to introduce austerity measures (as in Greece and some other Eurozone countries) or to print more money. Both of the above authors advocate more stimulus and are dismayed at the growing trend to austerity measures.

Ambrose Evans-Pritchard, With the US trapped in depression, this really is starting to feel like 1932, 04 Jul 2010

Paul Krugman, The Third Depression, June 27, 2010

Update (12th July 2010): Greenspan Says Economy May Be Undergoing a `Pause'
Former Federal Reserve Chairman Alan Greenspan said the U.S. economy may be undergoing what he called a “pause,” and that he can’t rule out the possibility of a so- called double-dip recession ... Inventory accumulation “has stopped” and production “has flattened out,” the 84-year-old former central banker said.


Mark Miller said...

The only thing I wish out of this is that people in government would learn some humility about their ability to really understand what's going on with business, the economy, and just people generally. If they understood that I think we'd all be better off in the long run.

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." -- "The Fatal Conceit", by Friedrich Hayek

Bill Kerr said...

hi Mark,

Have you read much of Hayek? Some claim (source) that the book you cite contains passages not written by him but inserted by his editor. It was his final work.

I don't have a deep understanding of Hayek's position but I think he was arguing that individual liberty and a free market were the best way to organise the economy. At any rate it's clear that he had a definite position on the libertarian side and argued strongly against government intervention in the economy. His position was not one of humility as such. He believed he was correct and others (communists, socialists, Keynes etc) were wrong. So, one question is, Are individual liberty and the free market adequate principles to guide the economy? There are strong arguments against that position.

Bill Kerr said...

I've updated the original post with a recent quote from Alan Greenspan confirming the mess

Mark Miller said...

I can't say that I've looked into Hayek deeply. I've read an abridged version of his book "The Road to Serfdom". In addition I have listened to other economic scholars describe his philosophy. He was not a total libertarian. He liked the idea of a minimal welfare state. I don't see his philosophy as all that audacious given that what he espoused was basically the way the U.S. functioned economically in the 19th and early 20th century.

I've been somewhat interested in a concept that Thomas Sowell has introduced of the constrained vs. unconstrained vision as it's applied to government. I saw an interview where he talked about this. I have also not looked at this dichotomy that deeply, but I find that from what I've heard so far I agree with the constrained vision of governance. It seems to take into account people's limitations of perception and cognitive ability to understand complexity. It puts a strong emphasis on looking to historical evidence as a guide on what government should do, rather than only looking to one's own experience and assuming that an action which is conceived in the moment will have the desired result. It encourages cautious action in small steps, to see what results develop, rather than dramatic, sweeping changes.

In my mind, when I talked about humility, it is that those in political power would be more skeptical of their ability to perceive what's happening, and how to improve things through action, and they would consider the unknown follow on effects of their policies.

What I find audacious about the unconstrained vision is it assumes that certain special people have all the perception they need to see what is wrong, who's doing it wrong, and know just what action to take to make it right. I think history has shown that in reality no such people exist.

Mark Miller said...

I forgot to include this. The name of Sowell's book, which the interview I mentioned was about, is called "A Conflict of Visions".

Bill Kerr said...

hi Mark,

I had a look at Thomas Sowell's site and read some reviews of his books, including this reader's review of the book you recommend. Off the top of my head I would say that the constrained (tragic view of human nature) and unconstrained (utopian view of human nature) need to be looked at together as an interpenetrating dialectic, rather than superimposed onto a two track version of history.

I also looked at his Basic Economics and read a few pages at amazon (link) but was disappointed with his endorsement of Lionel Robbins definition of economics, "the allocation of scarce resources between competing ends". I prefer the classical / marxist view which focuses on the ability of production to overcome scarcity. There is good account of struggle b/w these different viewpoints in Fine and Milonakis: From Political Economy to Economics, Chapter 12: Positivism and the separation of economics from sociology (amazon link)

Sowell was a marxist, then rejected it and has studied it enough to write a critique: Marxism: Philosophy and Economics. I might buy that one since I'm interested in why thinking people reject marx.