Comments on Adam Carr “Depression drivel”, 18/06/2009, http://www.businessspectator.com.au/bs.nsf/Article/SCOREBOARD-Depression-drivel-pd20090618-T4TR3?OpenDocument&src=sph
History will or will not repeat itself is an interesting question, but there are no automatically fixed answers.
Clearly there are very different institutions now as compared to back then in the great depression. It should suggest that we may not repeat the great depression. However, the financial and banking crisis a few months earlier was a stark reminder that history could repeat itself even under quite different circumstances. Also the lost decade in Japan may lend further support to that.
Expectations work in strange ways. Different sorts of expectations, adaptive, rational you name it, may co-exist and work together. If expectations of most people are that we are likely to have a quasi great depression in a different form, then it is likely that we will have one.
The problem is that we don’t know for sure how people form their expectations all the time. We have herd behaviours in the share market, housing market and some other market. We have bubble and bursting of bubbles. There are hardly perfect things in expectations.
So while I am confident that the world authorities should be able to deal with the current economic crisis, I cannot rule out completely the recurrence of another depression. I am not as confident as Carr is on this and I don’t want to be either. History is not necessarily always rational. Neither is the economy, and definitely the equity and housing market!
Showing posts with label depression. Show all posts
Showing posts with label depression. Show all posts
2009-06-05
Economists debate - interesting but not necessarily always productive
Comments on Richard Pomfret “Too soon for obituaries: economics is alive and (reasonably) well”, 4/06/2009, http://www.eastasiaforum.org/2009/06/04/too-soon-for-obituaries-economics-is-alive-and-reasonably-well/
Although I studied some economics, my economics is really rusty. So to engage in a debate among professional economists, especially academics, is a little over reach for me. It seems that all the people on both sides can be supervisors for me to do another PhD in economics (and one was actually my supervisor when I did one in the early 1990s, although I won’t say who). But I am encouraged by the ongoing economic crisis and may act like a venture economist (capitalist) in the debate. Forgive me if I am too naïve or wrong.
It is probably a fact and normal to have economists who may often disagree among themselves. In fact, some jokes on economists include one like that if you have N economists in a room you may have N or more different opinions.
Some economists tend to develop their own new theories (and some may withstand tests) by killing or wounding existing theories. Yes, it is perfectly normal to find the shortcomings of existing theories to progress and advance. But history of economics appears to suggest that the birth of new theories do not necessarily mean the death of existing ones. They may all live and thrive well under particular conditions, that is they may have their usefulness and suitable for some cases.
There have been debates between monetarists and Keynesians. The rational expectations revolution in the 1970s produced the famous result of policy ineffectiveness. But when times of crises, policy makers have no other tools but the two main ones: fiscal and monetary policies, though expectations have become an important part in modelling.
From these limited (but fairly famous ones) episodes of economics, it is not too difficulty to see that both monetary and fiscal policies as well as expectations, both rational and adaptive are useful. It is seldom the case in economics that one theory will always replace another, irrespective whether the proponents of new theories may tend to say otherwise.
So let’s move beyond formalities, though useful they may be, and focus on advancing economics. If the debate can provide some new useful insights into the current economic crisis, it will be good. It will be even better if some policy solutions can be found in the process.
Although I studied some economics, my economics is really rusty. So to engage in a debate among professional economists, especially academics, is a little over reach for me. It seems that all the people on both sides can be supervisors for me to do another PhD in economics (and one was actually my supervisor when I did one in the early 1990s, although I won’t say who). But I am encouraged by the ongoing economic crisis and may act like a venture economist (capitalist) in the debate. Forgive me if I am too naïve or wrong.
It is probably a fact and normal to have economists who may often disagree among themselves. In fact, some jokes on economists include one like that if you have N economists in a room you may have N or more different opinions.
Some economists tend to develop their own new theories (and some may withstand tests) by killing or wounding existing theories. Yes, it is perfectly normal to find the shortcomings of existing theories to progress and advance. But history of economics appears to suggest that the birth of new theories do not necessarily mean the death of existing ones. They may all live and thrive well under particular conditions, that is they may have their usefulness and suitable for some cases.
There have been debates between monetarists and Keynesians. The rational expectations revolution in the 1970s produced the famous result of policy ineffectiveness. But when times of crises, policy makers have no other tools but the two main ones: fiscal and monetary policies, though expectations have become an important part in modelling.
From these limited (but fairly famous ones) episodes of economics, it is not too difficulty to see that both monetary and fiscal policies as well as expectations, both rational and adaptive are useful. It is seldom the case in economics that one theory will always replace another, irrespective whether the proponents of new theories may tend to say otherwise.
So let’s move beyond formalities, though useful they may be, and focus on advancing economics. If the debate can provide some new useful insights into the current economic crisis, it will be good. It will be even better if some policy solutions can be found in the process.
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