Category Archives: Debtwatch

“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:

1. Good His­to­ry;
2. Bad Eco­nom­ic The­o­ry;
3. Good Eco­nom­ic His­to­ry; and
4. 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
Date: 2009-08-25
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.