John, I think that a broader view of the sources of recessions (and depressions) is routed in economic discontinuities or dislocations. Inventory imbalances are only one of those. The 1970' malaises were caused by the sudden increase in crude which led to inflation and economic dislocations. The problems associated with the early 80' (and leading to the 87 crash) where in my opinion purely due to government misjudgment and a sudden change in taxation (the S&L crisis was a direct result of Reagan sudden change in taxation of real estate transaction to try and correct existing misallocation of capital, that move should have been spread over 10 years to allow gradual shifting of capital to more useful use). Technological innovation also brings about economic dislocations. The next recession, IMHO, will be the result of capital misappropriation (excessive investment in I-net) and the write offs that will result. I think that in this rare occasion, Abby Cohen may be wrong and the next recession will be sometime in 2001 due to such a dislocation. I agree that inventory excesses are less likely to be the next culprit, but I maintain that the information age will bring its own economic dislocations. The wide availability of immediate data on the economy and its participant causes rapid shift of capital into those areas that are currently the most "promising" as far as return. What happens, IMHO, however, is that rapid dissemination cause capital to bunch up on the few opportunities for high return identified, causing rapid build up of excess capacity (the last Semi recession was a induced by excess capacity build up, not excess inventory for just that reason).
I believe that fighting the "inventory induced recessions" is fighting the last war. Now methods should be found to get more rational flow of capital, or else major write offs of capital invested (and thus a liquidity crunch induced recession) would be more frequent. I have no idea how that is could be done, however.
Zeev |
