Re: 1929 deja vu

From: Peter C. McCluskey (
Date: Tue May 02 2000 - 13:38:05 MDT ( writes:
>If you look at their figures over the last 150 years we find that the
>down/up month ratio has gone from 18/35 pre WWI to 11/50 post WWII.
>The economy spent 1/3 of its time in recession back then, and only 1/6 of
>the time now. This is a big improvement and I think we can give credit
>to our improved understanding of economic theory.

 I see several competing explanations, and no easy way to apportion credit.
 Improved inventory management has reduced frequent short-term economic
 Service industries are more stable than commodity manufacturing industries.
The increasing share of the economy devoted to stable industries should
stabilize the economy.

 Note that the Fed (and to a lesser extent professional economists) have
a strong incentive to promote the belief that improved understanding of
economics has stabilized the economy; few people have a comparable
incentive to promote other explanations.

 Whatever the reasons for the reduced frequency of recessions, I suspect
that there are multiple causes of business cycles, and that we can't be
as confident that long-term or infrequent cycles (the Kondratieff wave?
long-term changes in attitudes towards debt?) have been reduced as we
can be about the more common cycles based on things like inventory adjustments.

 I question your assumption that the Fed in the 1930s was ignorant of any
important economic principles that the Fed uses today to manage the economy.
They appear to have done as much to increase the money supply as they could
have done without abandoning their goal of maintaining the gold standard,
a goal which might well have been right if political support for it could
have been maintained.
 The switch from a (partial) gold standard to a pure fiat currency has
almost certainly altered the kind of monetary mistakes that are likely,
so we shouldn't expect future economic problems to be reruns of the 1930s.

Peter McCluskey          | The US Idea Futures Exchange: speculate on | political,financial issues at

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