Wednesday, October 27, 2010

The Blighted Leadership 80 Years After the Great Depression

I foolishly thought that the science of economics was a real "science" and had made progress over the preceeding 80 years. But the response to the Great Recession has forced me to realize that "Economics" isn't a science, but a branch of Voodoo Science, just as George Bush the 1st pointed out in 1988.

Here's a bit from an article by Brad DeLong which gives some clarity of just how poorly most countries have handled the economic crisis:
At the end of 2008, as the financial crisis hit with full force, the countries of the world divided into two groups: those whose leaders decided to muddle through, and China. Only the Chinese took seriously Milton Friedman’s and John Maynard Keynes’s argument that, when faced with the possibility of a depression, the first thing to do is use the government to intervene strategically in product and financial markets to maintain the flow of aggregate demand.

Then, at the start of 2010, the countries that had been muddling through divided into two groups: those where government credit was unimpaired continued to muddle through, while countries like Greece and Ireland, where government credit was impaired, had no choice but to pursue austerity and try to restore fiscal confidence.

Today, another split is occurring, this time between those countries that are continuing to muddle through and Great Britain. Even though the British government’s credit is still solid gold, Prime Minister David Cameron’s administration is about to embark on what may be the largest sustained fiscal contraction ever: a plan to shrink the government budget deficit by 9% of GDP over the next four years.

So far, China is doing the best in dealing with the financial crisis. The mudding-through countries lag behind. And those where confidence in the government’s liabilities has cracked, forcing the government into austerity, are doing worst.
The rest of the article takes a deeper look at the UK. It is well worth reading.

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