it's unfortunately wrong...the whole premise is wrong.
there is no 'new' economy...that's just a buzzword, similar to the 'new era' of the 1920's. the basic principles upon which the economy functions haven't changed, because human nature hasn't changed. the only evolutionary change is technological (or more generally, human) progress itself, which makes the economy more complex, without changing its basic laws one bit.
what is heralded here as being so great about it all (namely the combination of venture capital + stock market mania) has led to massive malinvestment - now the price for that is being paid. not that i condemn venture capital outfits per se...but in the mania they became stock selling scams, and that's a big difference. they also repeat an often stated factual error, i quote:
For example, economic historians now agree that the Fed's tight money policies in the late 1920s and early 1930s turned a garden-variety stock-market crash and recession into the Great Depression. Similarly, an extended series of mistakes by the Bank of Japan transformed the stock-market decline of 1990 and 1991 into a depression.
i wonder who the economic historians agreeing on this nonsense are? this is a myth invented by the monetarists in the sixties to buttress their theory...the reality is that the Fed of the early '30's cut rates a lot faster following the '29 debacle than its current incarnation in the wake of the April '00 NAZ crash.
i do agree with them that the scope for policy errors by the bureaucrats is great - only those errors have been committed DURING the boom, not after it. we have experienced an almost exact replica of the last k-wave autumn, which was the disinflation and productivity boom of the '20's, coupled with the exact same profligate monetary policy which resulted from misunderstanding the disinflation phase of the k-wave. had interest rates been left entirely to the market, the malinvestment binge and credit/asset bubble needn't have occurred.
i also agree with the conclusion that the forecasts of mainstream economists will not come true - they never do. that is because these dudes think if something is unquantifiable (read: can't be expressed as an equation), it doesn't exist. human nature doesn't exist? it is the MAIN driver of the economy and the markets....the social mood determines whether we have a bull or a bear market (and attendant an economic up- or downswing).
what is completely wrong is the blue-eyed belief that 'if only the Fed does the right thing and drops rates fast enough things will be alright'.
it completely ignores the huge asset and credit bubble and the assorted economic distortions that have grown to historically unprecedented proportions during the boom. to think these can be rectified by lowering rates 'fast enough' is ridiculous. i think even easy Al knows that, although he would of course never say so in public.
the only way to deal with this is by allowing the economy to go into a swift and sharp recession without interference, no matter how painful. what is called for is a hands-off policy, not bureaucratic intervention. intervention is what Japan's 'policy makers' have been trying for 11 years now, with only a deepening economic and financial collapse to show for it. |
