Wednesday, March 9, 2011

The Inexorable March of Progress

Despite doom and gloom, the US economy -- over time -- trudges up and up. Here is a nice picture to remind everybody of that fact:

Click to Enlarge

There are not many things in life as consistent and stable as is the above graph. What it shows is a human society growing and learning. So long as the society is stable and functioning, the graph should go up. But if people go beserk and elect a wingnut like Hitler then all bets are off.

Every one of the downturns in the graph has an explanation:

- the Great Depression because of excessive speculation worsened by a Hoover, a Republican who believed in "sound money" so the fiscal policies were contractionary (austerity) rather than expansionary

- post WWII readjustment

- the "oil shock" of 1973-4

- Paul Volcker raising interest rates to choke of inflation in the early 1980s

- the 1987 crash caused by "financial engineering" which had created "portfolio insurance" which works well when used in a limited way, but when everybody rushed for the exits the market crashed

- the "tech wreck" of 2000

- the Bush crash of 2008 caused by an ideology of "deregulation" and Wall Street's "financial engineering" that encouraged fraudulent mortgages that imploded

In each case there was a recovery and a retracing of growth to get back onto the trend growth line.

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