One blog participant brought a post by George Monbiot to my attention. I frequently comment that the financial regime initiated after WWII omitted key ideas that Keynes proposed–in particular, a new currency for international trade and controls on the behaviour of surplus nations as well as those running deficits. Monbiot provides the historic detail of these proposals and their defeat. It is well worth a read.
A link to my site from another blog alerted me to another post, from the opposite end of the spectrum, which is a cert for my “Brickbats” page–both for its content and its timing. On January 19, 2007, Gerard Baker of The Times editorialised that “Historians will marvel at the stability of our era”. An excerpt for you:
“Economists are debating the causes of the Great Moderation enthusiastically and, unusually, they are in broad agreement. Good policy has played a part: central banks have got much better at timing interest rate moves to smoothe out the curves of economic progress. But the really important reason tells us much more about the best way to manage economies.
It is the liberation of markets and the opening-up of choice that lie at the root of the transformation. The deregulation of financial markets over the Anglo-Saxon world in the 1980s had a damping effect on the fluctuations of the business cycle. These changes gave consumers a vast range of financial instruments (credit cards, home equity loans) that enabled them to match their spending with changes in their incomes over long periods.
In the City of London and New York, the creation of the secondary mortgage market, cushioned banks from the effect of a sharp downturn in their core business. The globalisation of finance meant that downturns in one market could be offset by strength overseas. The economies that took the most aggressive measures to free their markets reaped the biggest rewards.”
Yeah, right. In this context, I can’t help quoting myself from 1995, in the conclusion to my paper on modelling Minsky’s Financial Instability Hypothesis for the Journal of Post Keynesian Economics:
“From the perspective of economic theory and policy, [Minsky’s] vision of a capitalist economy with finance requires us to go beyond that habit of mind which Keynes described so well, the excessive reliance on the (stable) recent past as a guide to the future. The chaotic dynamics explored in this paper should warn us against accepting a period of relative tranquility in a capitalist economy as anything other than a lull before the storm.”
PS Paul Amery provided a link to a paper by Bernanke on “The Great Moderation” too, but it was not the correct link. Here it is–written in 2004 so it’s not as outrageously badly timed as Baker’s blather. But I wonder how often Ben goes to bed wondering “How on earth did it all come to this?”