Wednesday 19 December 2007

Pic of the day: I've compiled thousands of words myself over the years regarding how stupid you are, at least if you are American and still think that borrowing money and drinking it up makes everyone richer. Most people seem to be waking up now, though. How long it will last is another matter.

Vindicated?

Milton Friedman, one of the greatest secular thinkers of the 20th century and possibly the greatest economist after Adam Smith, passed away in 2006. One must assume – and indeed hope – that he never heard of me, and my disagreement with his predictions in 2001. In any case, it certainly looked, two years later, as if I was wrong. Technically, I was. But these days the economic landscape is very much like the landscape here in Norway in spring: The snow disappears, and a very different reality shows up that has been hidden under all the white fluff for a long time.

Creative bookkeeping. Economists, and generally well informed people, will know that this is not a compliment. It is a more polite phrase for lying with numbers, making things seem what they are not. Looking back now, one has to wonder whether the Federal Reserve and the Bush Administration have cooperated in a plot of grand creative bookkeeping the size of which the world has never seen before and hopefully will never see again. I have for a while held Alan Greenspan suspected of sacrificing the USA to save the world economy. Actually I don't think this is a bad thing to do, although the Americans would perhaps disagree. The problem is that you could not do that without lying, at least by strategic silence.

Ben Bernanke, a brilliant theorist but without the wisdom of his predecessor, probably honestly believed that the American property bubble was somehow different from and less dangerous than the Japanese property bubble had been a couple decades ago. Of course, it is a natural tendency in all people to think that they, and their folks, are inherently superior and stand above the laws of nature. This tendency is a good thing, for it ensures that all empires fall after a reasonable time. Now it is America's time. Alas, it was too short. I would gladly have seen Pax Americana last for generations more, for there is really no one of the same stature to carry their burden after them.

OK, perhaps the country does not fall into abject destitution and withdraw from the world scene. After all, it is less than a decade they have whitewashed. And there have been signs the whole time. The gradual weakening of the US$, for instance, is a clear signal to economists around the world that the American economy is not at all as strong as they say. And if the economy really was that strong, why would they need to borrow for consumption? Not just investment, but their daily bread so to speak. If your coworker boasted of how rich he was, but somehow always had to borrow money from you for lunch, wouldn't you begin to wonder after some years? I think there should ring a whole lot of bells long before now.

The official numbers are correct according to law and established traditions for bookkeeping, yes. But how much of the economic growth since 2001 has been real growth, as in more production, as opposed to people selling the same houses, the same shares and the same "financial instruments" to each other for ever higher prices? Even a child (perhaps only a child) understands that if three people sell their homes to each other back and forth, they aren't any richer as long as their homes are neither larger nor prettier after they are finished. Obviously, if that is the case, then 300 million people won't get any richer that way either. If this spiral of imaginary growth is unwound, how far will it go? How much of what has happened these years is just a hot air balloon?

I don't have those numbers, and in any case we don't know whether it will all unwind, or just a part of it, or whether it will even "undershoot" the way it overshot during the good times. Also, there are gray areas between the imaginary economy and the real one. Most notably, there have been jobs which would simply not have been there if people hadn't felt richer than they were. The people who have held these jobs are not imaginary. They still have the money too (if they haven't spent it) and they won't be asked to pay it back as the economy unwinds. On the other hand, they better start looking for safer jobs.

***

I do not know what more to say. I told all this before it happened, and nobody believed me then. I told it even as it happened, and they still did not believe me. Only now that maggots are coming out of the mouth, do people realize that the corpse is not Sleeping Beauty after all, and stop trying to kiss it and instead run around in panic. What am I to tell them now?

Well, let me tell you that voting for Barack Obama won't help. Not saying the guy is evil or anything, though I see some of my conservative friends consider him an Antichrist (one of many, admittedly, probably not the Big One.) No, my objection is that he seems incompetent in economics, and there has been enough of that for a while now. Hope? Please, less hope and more realism would be good now. Yes, we can? No, you can't, and you have to learn that as soon as possible or a worse fate will befall you. I am not kidding about that. There is much, much deeper to fall, and the higher you climb first, the worse it will hurt.

But I expect people to do it anyway. Vote for the guy with the promises as an alternative to taking personal responsibility. Whenever someone says something that makes them feel good, they make him their prophet, whether he comes from the left or the right, from above or from below. After all, a whole generation or more now is raised with self-esteem as their prime virtue, to the degree that advertisements simply can assume "you deserve the best" to be taken as an axiom, a starting truth from which other truths are derived. No, you don't deserve the best unless you also happen to be the best at what you do. Please adjust your consumption accordingly while there is still some wiggle room.