PARIS – The Dow fell 50 points yesterday, halting an impressive bout of insanity.
Asian and European markets are down this morning, too. If the selling continues, the Dow could fall back below 17,000 points today.
With little real excitement in the markets, we turn to Britain’s “pink paper” for entertainment.
An Unwitting Comedian
The Financial Times always brings us something to laugh at – usually in the editorial pages. The Big Short: Inside ... Best Price: $1.49 Buy New $7.99 (as of 02:35 EST - Details)
Chief economics commentator Martin Wolf is an unwitting comedian. He’s always ready to give prime editorial space to the most subprime ideas that ever nested in a PhD dissertation.
From his pulpit at the FT, he is widely considered to be one of the most influential writers on economics in the world.
We hope that is an exaggeration; we fear it is not.
The absurd and disastrous policies central banks and governments have been pursuing are often front-run in some loopy editorial written by Wolf. So we pay attention – partly for amusement and partly for advance warning.
In today’s paper, Mr. Wolf is at it again. Full of hope. Full of advice. Full of… Well, never mind.
“Demand deficit,” signals the front page, with Mr. Wolf’s headshot front and center. “Why policymakers must induce a global investment boom.”
Uh-oh… here it comes. Not content to mess up a single economy – or even an entire continental economy – he is going after the entire world.
China is slowing, notes Wolf. And the world “has lost its last significant credit-fueled engine of demand.”
This leads to a more general slowdown… and presumably to things too awful to mention in a newspaper published in London, the most financialized city in the world.
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A “Savings Glut” Problem
Sniff. Sniff. China is no longer buying copper, oil, aluminum, and other commodities the way it used to.
This is a big problem. Because it will surely exacerbate the “savings glut” challenge. (A savings glut occurs, say the Keynesians, when demand is weak relative to supply.)
Or, as his chief rival in confident simplemindedness, former U.S. Treasury secretary Larry Summers, says, it will make the problem of “secular stagnation” (long-term economic stagnation) worse.
In other words, hard cheese for the financial industry.
People just aren’t willing to continue spending money they don’t have on things they don’t need.
If you ignore the nonsense packed into the “savings glut” idea, it makes sense.
And it makes us wonder: How come people were borrowing and spending so much in the first place? And how come people don’t have more real buying power?
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How could you expect people to spend more?
If we were asking how come Americans do not buy more goods from China, wouldn’t that be a good place to start wondering?
But no. Mr. Wolf is not one for wondering. With scarcely a pause to puzzle over the question of cause and effect, he rushes to a solution.
“How should one manage a world in this sort of condition?” he asks.
Let ’Er Rip!
Our head spins. Our knees buckle. We reach for a glass of Henry Downes’ No. 9 whiskey (distilled on the premises of our favorite bar in Waterford City) to steady our balance.
We have trouble managing our email account. Managing the family farm is a challenge. And managing the family is hopeless.
But Mr. Wolf proposes, with a straight face, to manage the entire globe – with its 7 billion people, 6,500 languages, thousands – no millions! – of local and regional economies…
What bread doth this man eat? What air doth he suck into his lungs? What lunatic asylum has he escaped from?
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“It is now vital to avoid a significant slowdown,” says Wolf.
Everything slows down sooner or later. Traffic. People. Markets. How could it be vital to stop something that is inevitable?
Mr. Wolf doesn’t say.
More “unconventional policies” are needed, he goes on, without specifying what they might be. Then he lets it be known what he has in mind:
A world with such low real interest rates “offers huge opportunities for investment,” he says.
But if that were so, wouldn’t question marks spring up like mushrooms?
Wouldn’t you want to ask why the millions of serious businesspeople… and millions of imaginative entrepreneurs… weren’t taking advantage of these opportunities?
If that “glut of savings” were really available at “such low interest rates” waiting for someone to borrow it, why doesn’t the market discover the price at which buyers and sellers of credit can make a deal?
Don’t markets readily and easily solve “glut” issues, as Say and Ricardo argued?
If you are Martin Wolf, you don’t trouble to think about it. Instead, he laments: “The world has run out of large economies ready and willing to let lending and spending rip.”
What? Is that all there is to it? Is that the solution? More of the same?
For the last two decades, world debt has grown at about twice the rate of world GDP. It’s up from about $40 trillion in 1994 to more than $200 trillion today.
Letting ’er rip has gotten us into the situation in which we find ourselves today.
Should policymakers simply let ’er rip some more? Should they borrow more? Spend more? And call it “investment”? Say they are “managing” the world?
FT – thanks for the laughs.
Reprinted with permission from Bonner & Partners.