I am not sure about this, but keynes and hayek in some
correspondence seemed to be in agreement on the causes
of the cycle but not on the remedy. It is true that
Hayek's use is wrong not only for this but also for
methodological reasons. I probably meant that
intervention of the usual kind is not likely to pull
things back together; evidently, my use of Hayek was
merely illustrative and for that matter a poor choice
I admit. There is definitely contagion in this if the
US goes first and more so for East Asia than others.
What I should have said is that there is less autonomy
in so far as the use of macro policy is concerned for
national entities and this may include the US. So
policies of containing crisis via the conventional
money tools may not deliver because some can whether
the storm better than others, e.g. Europe and Japan.
So it is true that there are imbalances, and there
always was and will be for at least some time, but the
state may have been more effective then. Now, without
a concerted effort, crisis management is difficult.
The extent of the crisis will represent a test of the
cohesion of OECD joint economic policy. There comes a
time when economist whom keynes likened to dentist may
perform root canals or extractions. Theoretically one
must address a new role for the national state in the
global age. Mediating global crisis requires very
institutions with global reach, and reordering of the
posture of the North vis-à-vis the South.
The developing world has woken up to this reality
already. The case of Malaysia short-term capital
controls only worked because Malaysia mustered enough
resources to oppose speculators. That was an exception
and I do not think that it will be possible again. The
other day I heard the Brazilian economist Couthinio
explain to the world how it was impossible for the
state of Brazil to attempt any controls since without
external borrowing given the extent of openness the
whole country would collapse; he also added that 72
million Brazilian (half the population) lived under
one dollar a day. This may be typical of the
developing world. Globalization for the developed
world meant an export of crisis, but also an import of
crisis as the Mexican bailout hinted at that. So is
the developed world willing to bail out the US at any
cost. Of course this is merely speculative and related
to sharp drop in US output performance. I gathered
from your reply that the bears can get bigger only for
a while making things worst, so I presume the fall
could be hard and certainly a surplus is not here to
last not even if Bush relegates welfare functions to
the Churches. Here one must introduce political
economy, i.e. War, and a New World order in which
immediate re-division and even the old dream of
re-colonizing the newly independent states may not be
ruled out although highly unlikely since many of these
have already surrendered national sovereignty .
--- Jim Devine <[EMAIL PROTECTED]> wrote:
> Ali wrote: >Does the oncoming recession represent a
> typically keynsian
> business cycle or is there a Hayek story where given
> the extent of
> misallocated investments in the new technology
> (bunching up shumpeterian
> innovation), bankruptcies on mass are the way to
> deal with the problem and
> intervention may add fuel to the fire. <
>
> It's wrong to give Hayek credit here. As Haberler
> suggests in his book on
> business cycle theories, theories of recessions that
> arise from imbalances
> that arise during the boom precede Hayek. In fact,
> Marx's at least one of
> cycle theories can be interpreted in this way. (As
> Schumpeter admitted, a
> lot of "Austrian" ideas are developments on Marx's
> ideas.) Also, Keynesians
> such as Minsky have a purging of imbalances view of
> recessions.
>
> I agree that recessions have a purging effect,
> ridding the economy of
> imbalances and thus allowing a new recovery. The
> main imbalances I see in
> the US economy are consumer debt, corporate debt,
> and external debt. (These
> are what I've called Momma Bear, Baby Bear, and
> Poppa Bear, respectively,
> for the "Goldilocks economy.") If the Fed succeeds
> in preventing recession,
> these "Bears" will likely grow bigger, necessitating
> a worse recession down
> the line (unless Jubilee happens).
>
> However, it's possible that the economy could "cross
> the line" into a purer
> Keynesian territory. (More and more, I see
> references to such "tipping
> points" in economics.) When capitalists start
> competing to cut wages
> (relative to labor productivity) in order to survive
> recession and thus
> depress consumer demand, making the recession worse,
> they've entered what
> I've called the underconsumption trap. When prices
> start falling, a
> debt-deflation situation threatens to create a
> replay of Irving Fisher's
> depression. Also, such a situation encourages
> social disorder, which might
> encourage working class radicalization but also
> might encourage an increase
> in the popularity of fascist-type ideas (as in the
> era around the 1990
> recession, which gave us Timothy McVeigh the
> bomber). In any event, the
> need for Keynesian-type monetary or fiscal stimulus
> takes precedence over
> the problem of short-circuiting the process of the
> purging of imbalances.
> (I don't think monetary policy is effective in this
> situation, but that
> doesn't say it shouldn't be tried.)
>
> Ali also writes: >There appears to be high
> unevenness in the economic
> performance of different economic poles within the
> OECD and outside of it.
> The cycle starting point varies. Europe, excluding
> England (for there are
> question whether the junior partner is European), is
> exhibiting slow but
> steady growth that started not long ago. Socially
> Europe (class antagonisms
> and economic stabilizers are part of that) is better
> positioned to absorb
> shocks than the U.S., i.e. it will not bend too much
> in crisis. America is
> not well positioned; it hit the end the road with
> the new technology and
> guessing work says that they're maybe overinvestment
> and a text book
> accelerator story.<
>
> unevenness is normal. The key thing is that the US
> has been the consumer of
> last resort. When it stops consuming, the rest of
> the world suffers,
> including Europe, though of course the effect is
> largest in East Asia. It's
> not just that this encourages an accelerator effect
> of investment falling
> too. The processes of competitive austerity and
> export promotion (and the
> "race" to the bottom), which have been mellower of
> late, will then assert
> themselves with a vengeance, encouraging an
> underconsumption trap on a
> world scale.
>
> > Of course this whole thing can be said in the
> Language of Marxian
> political economy, a terminology like overproduction
> and capital
> disengagement stem from a different system of
> thought that attempts to
> adequately rationalize the historical in its state
> of becoming. However,
> this language, to some, appears cryptic and a formal
> framework is much
> easier to follow.<
>
> I tried to make the language less cryptic above (and
> in the 1994 article
> that shows up on my web-site). And it's crucial to
> remember, though, that
> the "Austrians" vs. Marx isn't just a matter of
> translation. Though the
> "Austrians" got a lot from Marx, they also added a
> bunch of subjectivist
> nonsense.
>
> >... Oddly enough, the only redeeming option for
> the West in this instance
> is the extent of the crisis in socialist ideology,
> it seems to be so severe
> that capital may organize its own affairs and make
> the third world pay the
> bill once more...<
>
> sad, but quite possible. It also seems possible that
> the core countries
> will go through 10 years of hell before we see the
> revival of the world
> economy via war and/or welfare statism.
>
> Jim Devine [EMAIL PROTECTED] &
> http://bellarmine.lmu.edu/~JDevine
>
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