Two and a half years into one of the most severe Bear Markets in History, the most striking feature of the typical economic discussion is the persistent state of denial about how perilous our situation truly is. Also notable is the unthinking promulgation of a species of economic fallacies which, though long since discredited, keep springing up like weeds to choke our reasoning.
Contrary to Keynesian dreams, there are several undeniable realities of a recessionary environment, writes Lew Rockwell. Wages tend to fall. Businesses tend to be liquidated. Resources are withdrawn from investment and put into savings. Consumers spend less. Stock prices fall. All of these tendencies may seem regrettable but they are necessary to bring all sectors back into realistic balance with each other.
The litany is familiar to anyone who knows of the history of the Great Depression: miscalculation, overtaxation, keeping wages and benefits high, prevent the liquidation, boost consumer demand, run up public debt. Fritz Machlup said that this is the path to impoverishment, notes Sean Corrigan.
William Anderson suggests a new slogan to fight the recession: It's the liquidation, stupid. While he doubts that the motto will catch on with Bush and his political rivals, in the end, it really is the liquidation. Those who ignore this kernel of truth really are the stupid ones.
By defaulting on one loan, Argentina may be acknowledging that no country ever became wealthy depending on public financing organizations from another hemisphere. One can hope. Such ideas can lead to economic sovereignty and wealth creation. Such ideas, if spread, can cause industrial revolutions.
The Federal Reserve System may have run out of room to maneuver. Facing a looming recession, it resolutely lowered its discount rate and frantically expanded its credits. Eager to stimulate the sagging economy, it enabled and encouraged businessmen to invest more and consumers to go ever deeper into debt. Yet the specter of recession refuses to fade away.
Many pundits have attempted to diagnose why such a wave of scandals and record bankruptcies occurred when it did. Most suggestions fail to address underlying causes. The real lesson of Enron, argue Steinreich and Oglesby, is that significant corporate corruption will end when one-party rule of corporate America does. Until then, expect more Enrons.
here are those who want to believe that a market economy is itself unstable, prone to periods of excess and in need of stabilization by some outside authority. As Jeff Madrick wrote recently for the New York Times, “government itself is a necessary bulwark against recession.”
