Monday, February 09, 2009

Fat chance

From Kindelberger and Alber's Manias, Panics and Crashes: "The monetary history of the last 400 years has been replete with financial crises. The pattern was that investor optimism increased as economies expanded, the rate of growth of credit increased and economic growth accelerated, and an increasing number of individuals began to invest in short-term capital gains rather than for returns associated with the productivity of the assets thet were acquiring." (p. 275).

Four-hundred years of this. This morning's WSJ includes John Taylor's "How Government Created the Financial Crisis." Nothing has changed since the K and A history was last published (in 2005).

Money and credit, you can't live with it and you cannot live without it. Or so it seems. Great Moderation optimism is gone. What's left? I particularly liked K and A's description of the "neo-Austrian" idea of de-control and private money. "Any bank, company, or person would be allowed to issue 'money' ... market forces will determine which firms issue good money. The different firms that issue money will compete to ensure that their own good money is accepted, and so good money will drive out the bad." (p. 86).

I know. Fat chance of that. I do read the newspapers.


I just caught this podcast with Daron Acemoglu. It includes a wonderful summary of why the Great Moderation turned so unexpectedly.