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I think the time has come to come clean and admit it publicly: the time of this blog is over. I have come a long way since this blog started in November 2006. Read the rest of this entry »
“any pro-capitalist argument must rest on long-run considerations. In the short run it is profits and inefficiencies that dominate the picture”. Joseph Schumpeter
In this quite dramatic financial and economic crisis, it isn’t easy to be someone not completely swayed by the common exaggerations about its gravity, as if it were the end of the world, nor by all the moralism that has been surrounding it. Those who say “wait a moment and think again” have the disadvantage of coming up with more reasoned approaches in an area where sometimes public ire seems to have taken the lead over reasoned discussion. Not that I believe that they matter to anyone, there are so many qualified authorities around, but I’ve been trying to structure my thoughts on the crisis and so share them modestly with anyone who’s interested. Read the rest of this entry »
If you’re interested in this issue, look here.
Germany and Japan, among the world’s most important economies, have held elections this week-end. Japan overthrew the long-ruling LDP and the coalition party members in Germany suffered severe blows in regional elections, not boding well for them in the forthcoming general elections. The economic crisis and its management so far has a lot to do with this. Both Germany and Japan suffer strains on their social systems and their economies due to their ageing societies. They also have had an economic model based on exports at any price with concomitant restrictions on domestic consumption. Both models – in particular Germany’s stakoholder capitalism - have often been portrayed in the past as less brutal and unstable than Anglo Saxon “shareholder”, or worse “casino”, (not to say “locust”…) capitalism.
As capitalism is deemed in crisis globally, and in particular, the Anglo-Saxon model, The Peterson Institute’s Adam Posen published on Friday a refreshing comment on these countries’ economic prospects: Read the rest of this entry »
While many economists are on holiday, the debate rages on over the future of the profession.
and please remember on the beach: the world is not at its end, there will be more recessions to comeJuly 28, 2009
or so would say Paul Ormerod:
“As late as the autumn of 2008, economic forecasters in general were far too optimistic about 2009. Are these same forecasters now too pessimistic about recovery? The historical evidence reveals a typical pattern of recession and recovery that suggests this may be so. Very few recessions last longer than two years. And most recoveries, once they start, are strong.
Since the late 19th century, there have been 255 recessions in western economies. Of these, 164 have lasted just one year and only 32 have lasted for more than two years. In other words, two-thirds of recessions last a single year, and only one in eight lasts more than two years. If we strip out the peculiar circumstances at the end of the two world wars, 70 per cent of all recessions last just one year.
The pattern of duration is virtually identical regardless of the size of the initial shock. Even when the initial fall in output has been more than 6 per cent, 70 per cent of recessions have lasted just one year. Even in the 11 examples where the initial fall in GDP was more than 8 per cent in a year, eight recessions only lasted that single year. This does not of course guarantee that the current recessions in western economies will be short-lived, but, equally, the speed of the fall does not imply they will be long.
An analysis of recessions since the second world war shows that those lasting one year or less typically end more abruptly. The average growth rate in the year after such a recession was 3.5 per cent, and in the subsequent year 3.8 per cent. This is compatible with the view that short recessions are essentially inventory cycles. Once inventories are reduced to satisfactory levels, normal production levels resume, and fixed capital investment expenditures postponed during the recession are carried out.
The 4.8 per cent GDP growth rate projected by the UK government from 2009 to 2011 has been criticised as too optimistic. It is in fact rather modest in this wider context.
Recovery was rapid even after the Great Depression. The nature of the economic catastrophe that started in 1929 varied enormously across countries, both in size and duration. The UK escaped relatively lightly with a 6 per cent fall in output spread over two years. In Japan, Denmark and Norway the recession lasted only a single year. But in Germany, Austria, Canada and the US, the cumulative fall in output was between 25 and 30 per cent, with the recession lasting four years in the latter three countries and three in Germany.
However, once the recovery began – in different calendar years in different countries – the average rate of growth was strong. GDP growth in the first year after the Great Depression averaged 4.7 per cent, followed by 4.6 per cent in the second and third years.
The caveat to all this is that the current circumstances are unusual. But so was the Great Depression.”
I happened to look up the London School of Economic’s website yesterday – pure chance, hadn’t happened in ages. The LSE is headed by one of the greatest advocates of the now much honed “light-touch” approach to financial regulation…. I couldn’t stop my colleagues from wondering yet again if I am really normal by laughing out loud in a silent office at the following annoucement on the home page:
“Wishful thinking and hubris – why the global financial crisis was not foreseen
When The Queen visited LSE last year she asked why no one had spotted the recession. Following a roundtable discussion at the British Academy, leading academics have written to The Queen in response.”
Here is the letter in question. Signed: “Your Majesty’s most humble and obedient servants”, followed by a long list of UK-based economists.
I wondered if I should blog about it, and thought I’d let it pass. But that story was duly picked up by the FT this morning…. with the paper’s usual seriousness/dullness. Oh Britannia…!
I still maintain: economists, take a good holiday!