Posts Tagged ‘recession’

Bubbles and Busts: An Airplane Analogy

This morning’s reading of Rob Alderman’s blog made me think of another analogy of the economy.

Your airplane analogy is good, but I think it can be taken further. The primary problem isn’t turbulence, but that the plane has developed an undersized engine (agricultural and industrial sector) and an oversized passenger compartment (private consumption). A plane like that is only capable of flying slowly, and even slower if it needs to climb.Every time the stall speed warning has gone off (the economy has slowed down), the Fed has done what every good pilot would have done. It has put the plane into a dive, by adding more money to the system. This makes the plane (economy) go faster, at the expense of altitude. As long as we were sure we were high up, higher than anybody else, this didn’t seem to matter. We stayed focused at airspeed (GNP), not altimeter (national debt).

Today, we’re painfully aware that China’s engines are getting stronger and stronger, while ours are due for a major overhaul. That has caused a lot of simple-minded people to go bananas over the way the altimeter is spinning backwards … to the point where they’re willing to pull the stick backwards and jerk the whole thing into a tailspin. If they do, it will be the end of America as we know it. Read more…

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Paul Krugman’s Structure of Excuses

September 28, 2010 Leave a comment

Structure of Excuses


Thanks a lot to Paul Krugman for drawing his flawless logic just one notch too far in this article in the NYTIMES online. There’s nothing that engages me more as a pupil, than when I see my teacher making a mistake.

How can I use words like “flawless logic” and “mistake” about the same article? Read more…

The Long-Overdue Death of an Economic Theory

Four Deformations of the Apocalypse

By DAVID STOCKMAN, Published: July 31, 2010

This article hit the top of the “most popular” list in the New York Times Online this morning, and it’s easy to see why: Finally a compact and easy-to-understand overview of what’s gone wrong with the American economy.

Stockman points out four ideas that have worked together, in a kind of synergy, to undermine our position. Together, they have created a false impression of prosperity that has enticed us to go further and further down the garden path into economic la-la land.

Sixty years ago, the people who lived in our house had to start laundry day by harnessing the horse and hitching it up to the wagon. Then they’d have to drive their laundry down to the river, stoke up the wood-fired boiler on the beach, do their laundry by hand, rinse it in the river, drive home, unhitch the horse and feed it, and then hang up the laundry to dry. That’s the kind of effort it took to create modern, civilized society.

One of our problems today is that other people are still willing to work just as hard, for similar rewards. For a while, they’ve been content to be our servants, supplying us with almost everything we’ve wanted while we ran through our capital. It’s going to be really interesting to see what happens in a generation or two, when they’ve saved some of what we’ve squandered, and invested enough of it in improved local infrastructure and education.