the_unlettered_tellurian

The US seems to be heading towards something scary. The last of the variables that was being flaunted by economists to ward off any suggestions of something similar to the great depression seems to be spiraling out of control.

Latest (un)employment figures released by the Bureau of Labor Statistics shows that 533000 U.S. jobs were lost in November 08. This is almost 73% of the 723000 jobs lost in September(403000 job losses) and October(320000) put together.

The average job loss over the past 3 months has been 419,000 per month; the same figure stood at 82,000 per month from January 08 to August 08 – now that’s like over 400% increase.

But please don’t worry…let’s just get back to being optimistic, and hope that the wizards who turned us into paupers will get us back on our feet.

Or maybe, it’s already time for us to start learning to make some ‘depression cake‘, if not actually start making it.

I just made a futile attempt at reading How a bubble stayed under the radar published on March 2, 2008 in the New York Times…very boring…

One great puzzle about the recent housing bubble is why even most experts didn’t recognize the bubble as it was forming.

This is not true. There were ample voices talking about the bubble. Just that enough people were not ready to examine the problem back then. Apparently a few hedge fund managers who understood it (Peter Thiel??) made a lot of money betting against the bubble too.

“I’d come to realize that we’d never be able to identify irrational exuberance with certainty, much less act on it, until after the fact.”

Excellent!!! If this is what the great Alan Greenspan has to say, we at least now know we don’t need “serious students of the markets” to hold such “responsible” positions. We just need someone who can communicate the problem “after” it has happened…err…sorry…make that “before”

If people do not see any risk, and see only the prospect of outsized investment returns, they will pursue those returns with disregard for the risks.

Now, that is something worth believing…we will continue investing in any future bubble (just like we did this time) until our dear business reporters decide to finally write a story on it. Unfortunately, all this writing happened way too late.

We have so many theories that explain the bubbles – information cascades, mimetic desire, bigger fool theory – we have enough of these. what seems to be clearly lacking is our ability to use these to control the bubble.

This is so boring…isn’t there anything better to write about “bubbles”, especially when the author’s credentials indicate he is a very enlightened being!

Came across this page put up by Mr. Thayer Watkins from the economics department of San Jose State University. He seems to have lost track of Indian economics after 1999. Has excellent things to say about the Indian economic conditions during those sad old years when it was not an open market.

I must have been asleep for too long… how else could I have ignored all the articles about a possible post-Olympic downturn in Asia that had come up since last year! I was completely unaware of the development till I made this post!

Here’s an article about the topic in Forbes, posted a few days after Alan Greenspan commented on the issue.

This article in The New York Times talks about overseas fuel subsidies taking a toll on U.S.

Subsidies are not good, but they might be required for certain classes of people. As mentioned towards the end of the article, removing the subsidy on kerosene might increase the utilization of wood as fuel in certain parts, and this would cause more harm (short and long term) than continuing with the subsidy.

A saner approach to subsidizing (by removing subsidies for unwanted classes of people) might make sense, but it will be difficult (impossible?) to manage it on the ground.

More importantly, an immediate increase in the fuel prices could have a disastrous effect on these emerging economies. Among other things auto sales will dip, transportation prices will sky-rocket, all essential and a whole bunch of non-essential commodities will respond to this resulting in a sudden jump in pricing. Consumers will respond by tightening their purses, further accentuating the cycle.

An immediate blow to the developing nations’ economies would possibly have a far greater effect on the global economy than the “subsidy toll” being talked about here.

Robert Samuelson makes an interesting case here in his column “You Call this a Depression?”

A few more details are required, though, for the sake of clarity.

Talking about the 1930 depression, he says that it “was a social as well as economic breakdown. Our present situation bears no resemblance to this.”

What precisely are the social and economic breakdowns he is referring to here? Where does social breakdown stop and economic breakdown start? Or vice versa? If they both co-existed and lead to the horrible depression, how did they come to co-exist? And what are we facing now – just an economic breakdown?

What happened in the Great Depression – the events – are written in great detail… what seems to be missing is a solid set of explanations about the inter-relations between the events.

Other assurances about the current scenario not being anywhere close to the harshest slumps of the past are hardly comforting. Apparently the 1929 crash was preceded by a five year bull run. Could the current scenario be a pre-cursor to worse things? If it is not – we need a few more convincing arguments. Some of the hand grenades lobbed at today’s economic that he mentions – the subprime mortgages, the credit squeeze, high oil prices – seem to be quite recent. How much more of these can be withstood, and for how long?

The second page of the article provides even more evidence that we are gazing at the future through a thick mist. We need to look harder, and be bolder in facing what we see.

We are a global economy, an economy with better ability to mitigate risks by spreading it across continents. And if the lesson being learnt, as he rightly mentions, is that the business cycle isn’t dead, what awaits us when it does go down. The answer is right there in the last sentence – “The present economy would have to get much, much, much worse before it warranted the same appraisal.”

And just saying that it is not “that” worse right now does not in any way mean that it won’t get “that” worse.