“Green shoots” are appearing everywhere—just read the newspapers, and you can be assured that we’ve turned the corner. Bar the latest rise in US unemployment—up 0.3% to 9.7%, after falling 0.1% the previous month—there’s nothing but good news as far as the eye can see.
Unless, that is, you take a look at a wider range of data, as economic historians Barry Eichengreen and Kevin O’Rourke have been doing in their series “A Tale of Two Depressions”.
“The Marxian view is that capitalistic economies are inherently unstable and that excessive accumulation of capital will lead to increasingly severe economic crises. Growth theory, which has proved to be empirically successful, says this is not true.
The capitalistic economy is stable, and absent some change in technology or the rules of the economic game, the economy converges to a constant growth path with the standard of living doubling every 40 years.
In the 1930s, there was an important change in the rules of the economic game. This change lowered the steady-state market hours. The Keynesians had it all wrong.
One of the reasons I’m still a bear on the economy is because the economists in the optimists camp are relying upon very bad economic theory. If that theory is telling them good times are ahead, that’s one of the best predictors of bad times you could have.
This isn’t because the optimists are bad economists, bad people, or any other permutation: most economists I know are good at what they do, and are very well intentioned too.
It’s just that they were taught a crock of nonsense at university, and they now build models based on a crock of nonsense that they erroneously believe to be accurate descriptions of the real world.
I’m happy to admit that it’s very hard to hold a bear perspective, when all about there appear to be “green shoots”, yet according to my body clock it’s still hibernation time.
There are, however, four factors that keep me in my lair:
- Good History;
- Bad Economic Theory;
- Good Economic History; and
- Good Economic Theory
I’ll be speaking at the Australian Museum’s regular monthly talk this coming Tuesday evening on the topic of “The Next Great Depression?”. In a nutshell, the details are:
Title: Museum Australia Monthly Talk
Location: Australian Museum (entry via William Street)
Start Time: 18:30
End Time: 20:00
Bookings and prepayment are essential: call 02 9320 6225 to book.
The cost is $20 for members of the Australian Museum and $30 for non-members. The event begins with light refreshments, followed by a one-hour talk, and then an open question time.
As noted earlier, I’m giving a brand new set of lectures on Behavioural Finance at UWS. I am taking a non-standard approach (surprise surprise) because I am dissatisfied with the texts in this area–even though it is generally a non-neoclassical realm.
The reason is that most Behavioural Finance texts give too much credence to the neoclassical definition of rationality–when that definition has as much to do with rational behaviour as walking on water has to do with mass transportation. I also want to include material from chaos theory and econophysics analyses of finance, which most texts haven’t incorporated; and I’m considering micro, macro and finance together since all three are integrated when one abandons the neoclassical fantasies about “rational” agents who can accurately foresee the future.
Last month I spoke at a seminar on the financial crisis organised by The Whitlam Institute, in reply to a speech by Professor John Quiggin. Guy Debelle, the Assistant Governor (for Financial Markets) of the Reserve Bank of Australia, was the other discussant.
The Institute has put together a very professional video of the discussion, which has been picked up by SlowTV, a free internet TV channel run by The Monthly, an Australian magazine of comment and analysis which, amongst many other things, published Australian Prime Minister Kevin Rudd’s lengthy essay on the Global Financial Crisis in which he explicitly critiqued neoliberalism.
I’m speaking at the Australian Shareholders Association Investor Hour next Tuesday (August 18) at 12pm with the topic “The Market Crash: Origins and Prospects”.
I’ll take a long view of the financial data–going back to 1890–and explain the booms and crashes of stock markets as symptoms of debt bubbles and their bursting. From that point of view, this is the largest asset-price bubble in the last 120 years–and probably in all of history. The prognosis for the market is therefore grim, despite the current rally.
This is mainly a post for my active discussants, who are now suffering from the volume of debate here with 399 posts on the previous topic, and my own workload right now that is making writing a new post impossible.
I had hoped to post a new substantive column on Monday about recent economic and housing market data, but with the new subject I’m teaching (Behavioural Finance) plus other work commitments there’s no way I’m going to get there.
Australian Prime Minister Kevin Rudd has followed up his critique of neoliberalism with a new essay in the Sydney Morning Herald on the causes of the crisis, and the policies needed after recovery.
With one exception, his key explanations for the crisis are the same as those identified by myself and the handful of other economists who predicted this crisis before it happened: