Professor Nouriel Roubini is a “Dr. Doom” (source: NY Times) for our time. His forecasts are both analytically clear and terrifying, as in “I fear the worst is yet to come” (The Times, 26 October 2008). As such he provides a clear reference point against which to compare other scenarios. How does my view contrast with his?The Professor sees this as a long, bad cycle. We both agree that the global economy suffered the equivalent of a cardiac arrest in October, the second phase of the global recession (which started in late 2007). Beyond that, however, the Professor is Dr. Pangloss compared with me (but not in any other sense). Our views differ in two respects.(A) In 2006 and 2007 I believed he was too early. The Battleship America (and even more so the world) turns very very slowly. This was not a typical post-WWII recession, a rapid slowdown caused by accumulation of excess inventory by businesses, or the Fed fighting inflation by increasing interest rates. This is something far larger, and hence was slower to develop.(B) Now he is IMO too optimistic. This is not a cyclical economic event. This is a historic cycle, the end of the post-WWII global geopolitical regime.
The magnitude and length of this downturn will be greater than economists expect (this is of course an over-simplification). Most suffer from “locked orientation.” That is, they “know” that this is a typical post-WWII cycle, and so disregard any contrary observations. This accounts for the slow and inadequate reactions of Secretary Paulson and Chairman Bernanke. For all their knowledge and experience, flawed orientation creates flawed decisions and actions.
This is just a guess, like all large-scale geopolitical forecasts (and unlike Dr. Roubini’s economic forecasts). This downturn might initiate a long, slow process of change in the world economic and geopolitical orders, changes that occur during the downturn and subsequent expansion. Or this global recession might precipitate rapid change.
What lies ahead on the path is not knowable, as it depends on choices we have not yet made and cannot yet understand.
Choices we have not yet made and cannot yet understand
We have already seen how this works.
(1) Like President Hoover and Andrew Mellon, the Bush Administration has converted under pressure from free market policies to large-scale interventionism almost indistinguishable from socialism.
(2) Wall Street’s leaders advocated free market solutions until, facing bankruptcy, they beg for government money.
(3) The auto companies protest government intervention in good times, and now beg for government aid (probably a long line will form behind them).
(4) Many homeowners were independent yeomen forging their own destiny. Now they cry for foreclosure moratoriums, bailouts, and prosecution of their creditors for “abusive lending.”
All this and the crisis is only 23 months old (arbitrarily starting with the collapse of mortgage brokers in December 2006)! The full force of the recession has only begun to appear in September, and will increase through the next several months (at the very least). How will America’s “core” beliefs change as the recession grinds us down in 2009 and 2010?
Choice. The problem is choice. Neo, The Matrix Reloaded
We cannot now forecast with any reliability because this is an event like none in our history. There are precedents, but our modern economy is too unlike that of 1880 or even 1930 for those to illuminate our situation.
Events happen more rapidly than that most analysts can update their mental models, so their work is outdated when written. We cannot see the end of this cycle; we can only track the process.
At a deeper level, beyond the flow of events, this is all about choice. Every serious crisis forces us to decide what America means. We weigh our fidelity to our principles, our history, our forefathers — vs. our ability to collectively withstand pain (financial, social, political). These are collective decisions, because all large-scale economic events have a decisive political component.
There is no advice to be given in any useful sense. My recommendations to my fellow citizens are as follows:
- Hang together.
- Sort out in what we truly believe (obviously belief in “free market solutions” has not made the cut).
- Stay cool.
Difficult times lie ahead. We will make difficult choices among unpleasant alternatives. I have faith that we will make wise choices.
If you are new to this site, please glance at the archives below. You may find answers to your questions in these.
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To read other articles about these things, see the FM reference page on the right side menu bar. Of esp relevance to this topic:
about America – how can we reform it? about the Financial crisis – what’s happening? how will this end? about the End of the post-WWII geopolitical regime some Good News about America! Forecasts
- We have been warned. Death of the post-WWII geopolitical regime, Chapter II, 28 November 2007 — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
- A warning from Professor Niall Ferguson, 4 January 2008
- Death of the post-WWII geopolitical regime, III – death by debt, 8 January 2008 – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
- Is America’s decline inevitable? No., 21 January 2008
- Geopolitical implications of the current economic downturn, 24 January 2008 – How will this recession end? With re-balancing of the global economy — and a decline of the US dollar so that the US goods and services are again competitive. No more trade deficit, and we can pay our debts.
- A happy ending to the current economic recession, 12 February 2008 – The political actions which might end this downturn, and their long-term implications.
- The US economy at Defcon 2, 11 March 2008 — Pretty self-explanatory. Where are we in the downcycle? What might the world look like when it ends?
- What will America look like after this recession?, 18 March 2008 – More forecasts. The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
- Another warning from our leaders, which we will ignore, 4 June 2008 — An extraordinarily clear warning from a senior officer of the Federal Reserve.
- Can the European Monetary Union survive the next recession?, 11 July 2008
- Big changes loom before us; why are they invisible to most experts?, 29 July 2008
- A look at one page of what lies ahead in America’s history, 7 August 2008
- “The Coming US Consumption Bust”, by Nouriel Roubini, 6 September 2008
- Can you see the signs of spring in the coming of winter? A note about the recession., 10 September 2008
- Effective treatment for this crisis will come with “The Master Settlement of 2009″, 5 October 2008
Originally published on November 9,2008 at Fabius Maximus and reproduced here with the author’s permission.