Outstanding Analysis by Anatole Kaletsky
From today’s Times. Here’s a nugget:
“The answer, to return to my medical analogy, is that the world was suddenly hit by a second, more dangerous disease in mid-September that was quite distinct from the chronic, but manageable, illness from which it had been suffering for the previous year. Correctly diagnosing these two separate ailments is absolutely crucial because they require different, and to some extent contradictory, cures.”
For the record, I don’t agree that the problems were quite as separate (or as manageable) as Kaletsky makes out before September, but they certainly have become so, and Kaletsky is right on target in pointing to the added complexity that now characterizes the situation.
From The Times
November 13, 2008
It’s an emergency. Long-term cures must wait
The world economy is suffering from two quite separate problems. Unfortunately they need contradictory solutions
Unemployment is soaring. Property and share prices are collapsing. Gordon Brown’s borrowing plans are accused of driving Britain towards bankruptcy. Mervyn King, the Governor of the Bank of England, says that it is impossible to predict when the recession will be over and is pilloried for “losing touch with reality”. What is to be done?
When a patient is seriously sick–as the British and world economies clearly are at present–it is wise to make a careful diagnosis before prescribing the cure. The first step in this, as the Bank of England prepares for its next interest-rate cut and Mr Brown flies off to Washington for the global economic summit this weekend, is to decide who is qualified to make the diagnosis and who isn’t.
Should we disqualify all those who failed to foresee the gravity of this crisis–a group that includes Mr King, Mr Brown, Alistair Darling, Alan Greenspan and almost every leading economist and financier in the world with the partial exceptions of Warren Buffett and George Soros? Speaking as a junior member of this confederacy of dunces, my answer is, not surprisingly, an emphatic “no”.
The reason for continuing to take seriously the views of the many so-called experts wrong-footed by this crisis is, however, more complex, and more enlightening, than the self-justification offered yesterday by Mr King. The Governor excused the Bank’s past misjudgments on the grounds that economic performance is inherently unpredictable and “the world changed completely” in mid-September after the Lehman Brothers collapse. This is perfectly true, but not very helpful. The question raised by Mr King’s refrain that “the world changed in September” is why this happened and whether this sudden transformation was inevitable.