I hope that Gerard Baker is embarrassed to have published the following in the TIMES of London on January 19, 2007: >> So it should not, but it probably will, come as a surprise to know that we >> are living through one of the great transformations of modern history. >> Almost unnoticed, most of the industrialised world, especially the >> Anglo-Saxon part of it, has enjoyed a period of unprecedented economic >> stability.
>> Recessions were once as frequent and as regular as World Cups or general >> elections. Now, ... they hardly happen. The classic business cycle has >> worked for centuries in a simple, recognisable way. ... Between 1950 and >> 1982 the US had seven recessions, one every 4.6 years. The UK had the same >> number and frequency. In between those recessions, inflation rose, reaching >> a higher peak in each cycle. >> But something historic has happened in the past quarter of a century. The >> business cycle has not been abolished, but in the US and the UK, it has been >> stretched, to improbably great lengths. In the process, the wild >> fluctuations of employment, output, inflation and interest rates have been >> firmly damped. The peaks of inflation have been lower, and the troughs of >> output shallower... >> Economists have coined a term for this remarkable period of stability. >> Taking their cue from the Great Depression of the 1930s and the Great >> Inflation of the 1970s and 1980s, they have called the current era the Great >> Moderation... >> The economic implications are much larger. In the absence of wild swings in >> activity, businesses and households can plan much more easily. The most >> obvious benefit can be seen in interest rates. Longer-term rates ... have >> what is called a “term premium”, an extra amount of interest that lenders >> require to protect them against the risks that big fluctuations in the >> economy and interest rates will undermine the value of their investment. But >> since those swings have been eliminated largely, interest rates can stay >> much lower. > 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. ... The >> economies that took the most aggressive measures to free their markets >> reaped the biggest rewards. >> The Great Moderation offers another precious lesson in an old truth of >> economics: the power of creative destruction. The turmoil of free markets is >> the surest way to economic stability and prosperity. << -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
