If there is any time to make a guess about the economy of 2002, I suppose
that today is as appropriate as any.
Unlike 19 out of 20 economic commentators I have read in the past two weeks
who have plumped for a variety of optimistic U- and W-shaped forecasts
ranging from a mild recovery in the first quarter, all the way through to a
strong recovery in the last quarter of 2002, I still think that Brian
Reading's suggested metaphor of bungee-jumping of a few weeks ago will turn
out to be nearest the mark.
The reason why I think this is that, after bouncing back to 40, the
price/earnings ratio of American hi-tech equities is still historically far
too high. Even ordinary equities are at about 25. These compare with the
long-term historical figures of 14 (that is, a 7% return).
If the next batch of American business profit-forecasts turn out to be
poor, as I think most people expect them to be, then the bungee will start
bouncing downwards again.
If 2002 turns out to be more than an 'ordinary' recession, then the value
of US$ could also start going down before the end of the year. This could
accelerate the decline of the Japanese Yen which is already going down of
its own volition, much to the anger of South Korea and China, which might
possibly respond with devaluations of their own. Europe would be forced to
devalue also, its newly-printed Euro notes having to be carried around in
wheel-barrows. In short, we could be at the start of domino-like
competitive devaluations all round the world similar to what happened
during the Great Depression.
Then, they'll be fun -- at least among those academic economists who will
still have secure jobs. The Keynesian remedy (such as Bush is trying now in
a tentative way) won't work -- in just the same way that the New Deal
didn't work for America in the 20s and 30s. It took WWII to bring the
Depression to an end.
If Keynes were alive today, he wouldn't advise his eponymous remedy either.
He later disavowed his earlier General Theory ideas, and came to agree with
Hayek in saying that government borrowing (and thus the over-printing of
money) was dangerous indeed unless it was guaranteed to be very short term
in a relatively small economy within a benign world economy.
I am just reading Robert Skidelsky's third volume of his massive biography
of Keynes. I am quite convinced from what I'm reading that if Keynes were
alive today he would say: "Over to Hayek." If Hayek were alive.
Perhaps in the coming year or two we'll see some fresh air coming into the
confused economic debate and some basic tenets being laid down once and for
all. Subjects for the debate? (a) Real value-based currencies, and not
arbitrary ones as now; (b) Land- and property-based taxation, and not the
present sort of taxes which are easily avoidable by the rich and evaded by
the mafia.
After all this misery might I wish FWers a Happy New Year!
Keith Hudson
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�Writers used to write because they had something to say; now they write in
order to discover if they have something to say.� John D. Barrow
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Keith Hudson, Bath, England; e-mail: [EMAIL PROTECTED]
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