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carey_jim is a Top 50 Commentor
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Deflation: The 800-Lb. Gorilla in the Room
One thing we can be relatively certain about is that the strong and smart will outfox and out compete the weak and stupid, in the long run, and they will make use of whatever opportunity arises.
Some people call it capitalism and free enterprise and other people call it Social Darwinism and the law of the jungle.
Whatever you call it, being certain about the future is more like whistling in the dark than sound financial planning.
Inflation or deflation, the intelligent and strong will profit and the weak will suffer.
Traditionally, liberal politics and economics have tried to mitigate this situation and radical politics and economics have tried to change it.
By world standards, America has been conservative in both politics and economics since World War II, at least.
But who knows what the future holds ;)
Would Defeat of Obama's Stimulus Plan Be a Good Thing?
For example, if you analyze the causes for the recent rise of wage inequality in the United States (just to cite an arbitrary example), from a purely economic point of view you get:
1. Fall in union membership
2. Rise in immigration
3. Rise in trade with low wage countries
4. Rise in technical requirements for good jobs
5. Rise in families without fathers
6. Increase in both husband and wife working
7. Decrease in the quality of schools
8. Decrease of the minimum wage
9. Increase in drug use
10. Fill in the next 10 causes yourself.
But all of the above causes have historical, social, psychological and political roots as well as economic ones.
For example, if you confined yourself to looking at economic models to describe the effects of a drop of union membership on wage inequality, then by ignoring psychology, sociology, history and politics you will anger a lot of people (psychology) and make them ignore your analysis (politics) as too one sided.
Great Depression 2.0: Acceptance is Spreading
In the late 1920s and early 1930s, most of the political and economic pundits of the time, such as Joseph Schumpeter, Lionel Robbins and Andrew Mellon, feared inflation much more than depression. They got the unexpected.
In history, the unexpected often happens.
No one predicted the French Revolution and the rapid disappearance of the Ancien Regime.
No one predicted World War I and the subsequent rapid fall of Europe as a world power.
Very few imagined the complete and rapid collapse of communism.
In 1900, very few predicted the rapid pace of technological change in the 20th century.
The list goes on.
Fairly often in human history, rapid change happens and everyone is surprised. At least we should not allow ourselves to be surprised by that!
Free-Market Absolutism: Some Parades Need Rain
The French and Germans, for example, regulate language usage, in schools and other places, much more than we Anglo-Saxons do. One of the results is that they have two or more dialects that are spoken informally, in ordinary situations, and a formal language which is only spoken at schools, government offices and other official places.
American English is spoken by everyone, more or less, with a lot of slang thrown in when we are speaking informally but we don't have two or three separate languages.
The rest of our society is similar.
Rules seem to percolate upwards from the actual practice of people and not downwards from edicts from educators, politicians and religious leaders.
The same is true in economics and finance: We are less driven by ideologies than other cultures. So I think you are just noticing that free market ideologues are out of step with 'business as usual' in America and I agree.
Whatever works here is best and not what we are TOLD works best.
Canaccord Adams on Four Likeliest Economic Scenarios for 2009
Japan Auto Sales Plummet on Dour Domestic Demand
When things get tough (recession) new cars will be among the first to go, further fueling a contraction in spending which is deflationary.
Genentech's Trastuzumab-Dm1 Shows Great Promise in Treating Breast Cancer
After plodding through the statistics (and admittedly giving up in frustration) from what I gather, your article confirms what is already clear and it is that the American pharmaceutical industry is completely bankrupt and even immoral in its search for a cure for cancer.
Avastin, the other 'blockbuster' drug from Genentech, costs about $100,000 only to prolong the lives of advanced colon cancer patients by about two months.
Cancer cure rates have remained almost flat for over twenty years.
The profit motive doesn't seem to work well in science.
Einstein wasn't interested in physics for the money.
If Einstein had profited from his discoveries, he and his descendants would have become the richest people in the world (and possibly controlled the entire world.)
My guess is that the drug discovery model will change in the near future and that pharmaceutical companies will fall on, at least compared with the past, hard times.
Just a hunch, of course.
Making Astrology Look Respectable
But one notable exception was the favorite conservative bogeyman John Maynard Keynes, who made a fortune speculating in the markets. It is said that he would scan the financial pages for an hour every morning and then 'place his bets.'
He made a fortune that way.
Maybe he knew something the rest of us don't know. Or maybe he was just lucky.
Or maybe his stars were aligned in the right quadrant.
Is Financial History Bunk?
If you were hiring someone to do a job, you would look at his/her resume and make certain that it reflected the truth.
But then again, you would look him/her in the eye and ask a few pertinent questions, and if you really liked him/her and his/her answers you would probably hire him/her whatever the resume said. You would find excuses and reasons for past failures.
It's the same with history, isn't it?
What Went Wrong in 2008?
I only quoted the Old Guy for the benefit of henarl. Don't give ME negative points for that.
(I wouldn't advise giving His word negative points either: He might get even.)
What Went Wrong in 2008?
You shall not bow yourself down to them, nor serve them. For I the LORD your God am a jealous God, visiting the iniquity of the fathers upon the sons to the third and fourth generation of those who hate Me, and doing mercy to thousands of those who love Me and keep My commandments.
Deuteronomy Chapter 5
What Went Wrong in 2008?
But even if 2008 turns out to be another 'big one' and not just an ordinary recession, we've had big ones in the past, before the Great Depression, and we have recovered from all of them, obviously.
It seems to me that America represents what is best and worst in the tradition of Western Civilization, dating all the way back to the Greeks and Romans.
Economic virtue, which is represented by such concepts as hard work, personal responsibility, saving for a rainy day, trustworthiness, respect for other people, fair play, etc., is contrasted with economic sin which is represented by greed, dishonesty, profligacy, disrespect for the rights of others, lack of respect for the law, not saving for a rainy day, etc.
The ups and downs of capitalism reflect the ups and downs of our collective economic virtue and, just as we have to pay for our sins in our personal lives, we have to pay for our collective sins in our economic life as a country.
The good side of a Great Financial Reckoning is that, as a country, we have the opportunity to learn to live 'economically virtuously' again and that is a good thing ;)
But most economists don't factor morality into their equations and look elsewhere for explanations of recessions, such as the money supply.
Why the U.S. Is Not Like the Former Soviet Union: Response to a Recent WSJ Article
I read your article as a vindication of my feeling, and the feeling of many other Amerians, that the Cold War was a form of mass hysteria and was an extraordinary waste of money and resources.
If there was ever a true 'Paper Tiger' (Mao's description of America) it was Russia (and China.)
There are still many (mostly wealthy, older) Americans who disagree with your article and think that Russia was an economic powerhouse that would have buried America (the phrase of Nikita Kruschev) if it hadn't been for the increased defense spending of Ronald Reagan ('Tear down that wallk Mr. Gorbachev!')
These people apparently think Russia might STILL have the capacity to bury America, because they want to surround Russia with missiles and, if possible, reduce it to a third world outpost for buying and selling camels.
It might be helpful for you to write an article about the real dangers presented by Russia, whatever you think they are.
Also, as a former Russian, what are your opinions of the dangers of third world communism in places like Vietnam, Cuba and Venzuela?
Lastly, a lot of Americans would like to travel in Cuba again and, while we have never held any illusions about the virtues of dictatorships in any country (including the United States) we think the fear of Cuba is greatly exaggerated and probably just another holdover from the hysterical period of the cold war.
What do you think?
America's Trade Is Based on Protectionism
Thanks for the vote of confidence. I'll keep reading, listening to lectures and reporting what I find!
On Jan 05 06:29 PM The hand wrote:
> John - thanks as always for your comments.
>
> carey_jim - i felt bad because i thought you had missed commenting
> on this article. you are in my opinion the seeking alpha expert
> on the great depression.
>
> steven hansen
>
The Law of Unintended Consequences: 20th Century and Beyond
'Most economists are either, sellouts (Lawrence Yun), cheerleaders (Larry Kudlow), ideologues, or academic theoreticians. If Barack Obama is depending on economists to determine our future, all is lost. Alan Greenspan was an economist. If we had done the opposite of everything he recommended in the last 20 years, the country would be on the right track.'
Then who could have been better than Alan Greenspan?
A follower of Ayn Rand and an accomplished saxophone player.
Dropped out of the economics program at Columbia and never taught in a university.
1992-2007 stands out as one of the greatest economic jazz riffs of history.
Stan Getz would be proud of his former band member, Alan Greenspan.