Monday, February 21, 2011

Where's the Beef?

A while back I criticized the emptiness of my own economic argument:

Back in 1977 I wrote...

According to the theory, after the good times have lasted a while, inflation and other factors may begin to weaken the economy's growth. Eventually, conditions get bad enough that the economy begins to shrink. The result is a recession....

Things eventually get so bad that they 'can't get any worse,' and then the economy begins to grow again. Thus the pattern the economy weaves is a cycle of growth and recession.


So in 1977 I thought that time, inflation, and other were the factors that cause recession. And that time and lousy conditions are the factors that restore growth.

Isn't that inadequate? I think so, now. But a lot of economics is empty like that.

A lot of economics is empty like that. I came across one just now, by R.A. of The Economist, of all places.

I don't know whether it is R.A.'s story that's unsatisfying, or "the world's" or both. But anyway, here is the excerpt that prompted this post:

I would argue that views of the world formed during a very specific economic period in which the magic of inflation hawkishness developed a similar hold over the minds of central bankers. The stagnation of the 1970s was cured by the central bank engineered downturn of the early 1980s, which ushered in the long, growth-rich Great Moderation. Inflation is the enemy, and the more than can be done to exorcise the inflationary demon from the modern economy, the stronger and more durable will long-run growth prove to be.

It is that kind of thinking, that kind of inadequate thinking, that leads to economic conditions that lead to financial crises and great recessions. Compare R.A.'s excerpt to any of my three previous posts and you'll see what I mean.

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