I was asked six questions (mostly about Create Your Own Economy, but not all), here is one of them:
FE: What has most surprised you about the current economic downturn?
Mr Cowen: That
it happened with such severity. As an economist I grew up reading and
thinking about two formative events. The first was the crash of the
real estate bubble in the late 1980s, preceded by the stock market
crash in 1987. The second was the Third World debt crisis of the early
and mid-1980s. Both were bad, but for the United States neither were
like the last two years. I’ve never been a believer in any of the
extreme forms of the efficient markets hypothesis, but those events
made me overly complacent about how badly crashes and excess leverage
can turn out. In the early 1980s I expected widespread insolvency for
major U.S. banks and when they muddled through I ended up overrating
their ability to do the same again.
Tyler,
How long does it take you to read The Washington Post, Wall Street Journal, New York Times, and Financial Times every morning? What percentage of the articles do you read, and of those that you do read, what percentage of them do you read?
V.S.
I don’t know. How bad is it? We had (too) low unemployment and now it’s high. We’ve had major banks go under and the world didn’t stop, though people didn’t like it. The lender of last resort lends as a last resort and people are shocked.
Anyway, it seems like the risk is that we don’t have a hangover, but cirrhosis. If this probably really did build up over decades, then it’s not likely to be fixed in a couple years, and any problem the government can’t tax or shoot they lose interest in quickly. And treating a long-term unwinding like a panic, regardless of one’s business cycle theory preferences may not be ideal.
As for Twitter and swimming in free stuff, we may be observing the unwinding of the paradox that the limit to growth is human labor, and the solution is their residual energy.
Tyler, you would do well reading a little economic history of the United States…written by historians and NOT economists.
Tyler, what are your thoughts regarding the response to the crisis? Is the issue of additional debt, or at least to promise of such liquidity, a manageable path or are we taking a similar approach to the post-WWI credit crisis?
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