Global Financial Crisis and The Tide Turning?

The worldwide financial turmoil goes into its second year by now (November 2008). People, economists, policy makers and laymen (like me) alike, seem to agree it was caused by:

 

1) Easy money (Greenspan's fault?)

2) Corporate greed --esepecially in the Wall Street: excesses in mortgages and CDSs

3) Lax oversight.

 

In a word, it was not a systemic problem but a human error. Today, I came across a succinct summary from IMF  on the world economy as related to this crisis (the attachment). Hopefully you may get a clue therefrom.

 

In any case, don't panic! The sky never falls down. The Main Street is in a pretty good shape.

 

In October, Paul Krugman is nominated as the lone 2008 Nobel Economics lauleate. In November, Barack Obama gets elected as 44th President of the US. (You may add Al Gore's winning of 2007 Nobel Peace to the list, if you wish.) Were they just coincidences? Or, is the tide turning (in policy ideology as well as in economic thought)?

 

In 1979, late Milton Friedman famously annonced that the tide was turnining toward yet-to-be-named Supply-Side Econimcs in his book Free to Choose (reprinted in 1990 New York: Harcourt Brace).

 

Exactly 20 years late, Paul Krugman suggested "The Return of Depression Economics (New York: W.W. Norton)." FYR, Depression Economics is none other than "Demand-Side Economics," as it were.

 

Depression Eonimcs is for (American) Liberalism what Supply-Side Economics is for Conservatism.

FYR, Conservatism may encompass American Libertarianism and Eurpoean Neo-liberalism.

 

At the least in the Western World, Conservatism was the mainstream from 1776 (Smith's Wealth of Nations and American Independence) to 1817 (Ricardo's Principles of Political Economy) to all through the 19th century (Industrial Revolution and first-round Globalization) to 1914 (WWI). The Liberalism was from 1914 to 1933 (New Deal) to 1936 (Keynes's General Theory) to mid-1970s. Then the tide turned once again to Conservatism (1979 Thatcherism, 1981 Reaganimics, 1989 Breakdown of the Berlin Wall, and 1991 Breakup of the USSR) and it has become dominant for roughly three decades.

 

In the meantime, Nobel Prizes mostly went to Supply-Side economists.

 

Then, national financial crises broke out one after another: Asia, Russia, Brazil. and Argentina.

J. Stiglitz, chief economist at the World Bank 1997~2000 and a prominent Liberalist, shared the 2001 Nobel Prize and bursted with his best-selling Globalization and Its Discontents (2002 W.W. Norton).

 

P. Grugman moved to Princeton (by then-Economics Department chair Ben Bernanke) and became clumnist for the New York Times in the year when G.W Bush was elected 43rd Presindent. Since then Prof. Krugman has been known worldwilde as flag-bearer of American Liberalsim and front-runner in Bush "hatrism."  Subsequently, he pulished another book The Conscience of a Liberal (W.W. Norton) months before the Nobel announcement.

 

Now, we have a fnincial turmoil in a gobal scale, and that is exactly what Prof. Krugman warned back in 2005. At any rate, it seems, by now, to be a consensus that we need a tighter and stricter regulation, or re-regulation, of the economy by the government everywhere in the world. In addition to regulation, Prof. Krugman advocates a big government, a more progressive income tax, and the welfare state--little wonder as for a "Liberal."

 

Then, do we expect the tide is turning yet another time?

Well, your guess is as good as mine.

 

P.S. In the recent history , Krugman seems to play the same role for the Liberalism as Frieman did for the Conservatism. They could not be more different in economic-policy inclination. Nonetheless, they have some commonalities, one of which is they are simple, succinct, clearcut and easy to understand in explaining (difficult) economic theiories and categorical in saying things.

 

For those who are not familiar with Conservatism vs Liberalism, and Supply-Side vs Demand-Side, I also attach short memos on them. 

SavingsFDIs(10-08).doc

0.05MB

FC09-01ConLib.doc

0.09MB

2008GlobalCrisis.pdf

0.31MB