Thursday, May 28, 2009

A glimmer of understanding

At last, someone over on The Telegraph is starting to think for himself! Edmund Conway breaks from the "blame the banks" rank and finds that the cause of the economic crisis isn't quite what it seems.

The financial disaster was the ultimate manifestation of a far deeper problem – a wholesale malfunction of the global economic system.

Ah well - close but not quite. The "global economic system" hasn't malfunctioned - it is working exactly as one would expect it to.

For decades, we in the Anglophone West borrowed too much, while the other half of the world saved too much. It was the tectonic collision of these imbalances which caused the crisis, which brought about the worst recession since the 1930s, and which could trigger another bust decades in the future.

That's more like it! There was a massive market "imbalance" - and what does the market do with imbalances? It finds a way to correct them - that is exactly how the market works. It hasn't malfunctioned - it has performed entirely according to the theory.

The history of economics over the past two centuries revolves around this quandary over international trade imbalances, and the series of crises they have caused.

Yep - and we thought we'd found a way around it choosing to ignore the history of economics. Arrogant or stupid? I'm betting on arrogant AND stupid.

To try and get around this imbalance we relied on debt. To fund this debt we relied on rising property values resulting in a huge distortion in the housing market - both here in the UK and in the USA .... and in Europe to a lesser extent (Europe isn't so hooked on property ownership as the UK and USA).

You can not buck the market. It will always, eventually, find a way to correct an imbalance and that is what it is doing now. Our governments are desperately firefighting to prevent that causing a complete and utter economic crash in the west, but ultimately the market has to correct.

The only way for any nation to withstand that is to protect its economy - that is the ONLY way any nation can cope with a market imbalance. Anything else is just so much hogwash. History proves this.


TheFatBigot said...

I would also challenge the "saved too much" bit. I don't believe there is any such thing as saving too much.

That's not to say I'm much good at it myself.

Stan said...

True, although I suppose there is the worry that something will happen which will make your savings worthless.