Friday, September 18, 2009

How much should we fear the "L" shaped economic recovery?

Paul Willmott has an interesting blog post in which he said that he is hoping for one L of a recovery and I have to say I concur wholeheartedly. The economic prognosticators , after peering into their respective crystal balls or tea leaves, have seen the future and declared it a V , U , W, square root and other exotic shapes. Now almost all observers are in agreement that the dreaded L shape which plagued Japan is to be avoided like the pest. Not so Wilmott, the whiz of quantitative finance. He asks:
"Have you any experience of Japan in the 1990s? Well I have. And it didn't seem too bad to me. Were there hordes of people begging on the subway? Not that I recall. Was it dangerous roaming the streets for fear of being mugged? No, it seemed safe enough when I was there. Was there high unemployment and general desititution? No. More on this anon.

Japan in the 1990s was, as it still is, a safe, enjoyable place, with a very high standard of living, and at the cutting edge technology wise. Not the hell hole that economists like to paint. And so I really cannot imagine what Japan would be like now if they'd had a V-shaped recovery. They'd all be communicating by telepathy and travelling via matter transporter I guess.

To me the important point about the economy is not what letter of the alphabet best represents it, nor its percentage growth. After all, is it really necessary to grow at x percent per annum in order to maintain the feeling of status quo? Like the shark, which supposedly has to keep moving forward in order to stay alive. What sort of life is that? I believe what is most important is the well being of the people, and that's not the same as GDP. It is, however, closely linked to rate of employment. And that's where Japan does remarkably well. That's what governments should focus on, to L with growth!"

This flies in the face of the conventional economic wisdom which repeats the words growth and consumption in a manner resembling autism, someting duly noted by the post-autistic economics network .

And for what ultimate purpose do we need this constant economic growth? To continue to live according to Victor Lebow´s encomium of consumption ?
"Our enormously productive economy demands that we make consumption our way of life, that we convert the buying and use of goods into rituals, that we seek our spiritual satisfactions, our ego satisfactions, in consumption. The measure of social status, of social acceptance, of prestige, is now to be found in our consumptive patterns. The very meaning and significance of our lives today expressed in consumptive terms. The greater the pressures upon the individual to conform to safe and accepted social standards, the more does he tend to express his aspirations and his individuality in terms of what he wears, drives, eats- his home, his car, his pattern of food serving, his hobbies.
These commodities and services must be offered to the consumer with a special urgency. We require not only “forced draft” consumption, but “expensive” consumption as well. We need things consumed, burned up, worn out, replaced, and discarded at an ever increasing pace. We need to have people eat, drink, dress, ride, live, with ever more complicated and, therefore, constantly more expensive consumption."

I would prefer instead to turn to Keynes:

"The full employment policy by means of investment is only one particular application of an intellectual theorem. You can produce the result as well by consuming more or working less. Personally I regard the investment policy as first aid… Less work is the ultimate solution.”
Much more on this topic can be found here at econospeak.

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