A Couple of Gems

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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?”