2008 crisis in history
Econbrowser has a great post which takes this post by Brad Delong and adds some historical background.
The post mentions that policy action will aim to prevent the mistakes of 1929, the 1970’s, and Japan in the early 1990s – behind the slight humor this is actually a very important comparison.
One thing I would like to add is that the 1970’s crisis involved a huge negative terms of trade shock for a lot of the developed world (oil prices!) which we have already experienced this time around (I believe there was a smaller TOT shock in the early 90’s) – as a result, policy need to take into account this difference.
It isn’t just that policy was too tight in 1929 and the early 1990’s and too loose in the 1970’s – there are fundamental differences in the shocks being faced. Furthermore the structure of the economy is entirely different (unions are weaker, communications and information dissemination is a lot more rapid, prices appear to be more fluid in a lot of cases). As a result, a historical comparison can only take us so far – although we must not discount histories ability to provide an intensely useful benchmark.
Is it possible that oil supply is an under recognised factor. I have two reasons for thinking that 1. I read a book on how to invest to guard against peak oil and it mentioned the collapse of major banks (coincidence) and 2. you don’t know you hit the peak until you look back (May 2005 is still the record for crude production(?))?
The lessons of history have to be taken from a broader perspective than the last century. The recessions of this past century are mere blips on the record of free economies. Rome’s decline has been attributed to the excesses of big government, price controls, and corruption at the highest levels. Other societies were undermined from the inside by new elites that preached destructive philosophies–look at Germany and Russia with their adoption of their intellectuals’ theories advocating socialism, racism and radical totalitarianism. China suffered for centuries from isolationism, the Middle East from religious fundamentalism. Only the Greek-Judeo-Christian moral foundation of self-reliance and personal responsibility has produced economic progress.
The rise of nations has always been fueled by the common genius of people in societies where they were free to succeed and free to fail. The Decline of nations comes from insulating the citizens as if they were some form of victims needing government help.
The modest recessions seen in America over the past half-century must be looked at in this over-riding manner. The only lesson to be gleaned from the current financial mess is that we have strayed from the traditional concepts that made America great during the past three centuries. And the straying has been brought about by the fanciful theories of the elites who want to administer to us all, the teachers who preach socialism, the media that promotes liberal abstractions, and the politicians who pander to the least among us. .
Another angle is to view humans as a species pushing resources to their limits. A large proportion of us are only alive due to oil.
“Is it possible that oil supply is an under recognised factor”
It is always a possibility – especially since there isn’t very good information around stocks.
“The lessons of history have to be taken from a broader perspective than the last century”
And we also have to learn not to dwell to specifically on the lessons of history – each crisis will be different in specific ways.
“Another angle is to view humans as a species pushing resources to their limits. A large proportion of us are only alive due to oil.”
I’m not sure I’d use the term pushing resources to their limits – I would probably say, using resources. If we run out we run out – as long as the price represents the true scarcity (which it may not because of information asymmetries – in which case the solution has to be better information) then we are doing the best we can given our limited resource endowment.