It's Different This Time Around!
August 19, 2009
– Comments (12)
I'm considering witing an article with the above proposed title, and would like to see how some of you react to the phrase first.
Personally, I'm far more interested in how our present predicament differs from historical case studies than how it resembles them. Comparing disparate events carries an inherent risk, whereby even one misconstrued correlation can render the comparison faulty ... and therefore the conclusions drawn from it potentially misleading. Contrasting our predicament against those same case studies, meanwhile, can glean valuable insight without attempts to leap directly to some hasty projection of what we can expect to come as comparative analyses commonly set out to do.
I suppose, however, that I would find the greatest value in a macroeconomic analysis that simultaneously compares and contrasts elements of our predicament with myriad historical cases, drawing from the well of history for insight one item at a time, and progressing to conclusions carefully only after amassing a wealth of observations.
Here's where you come in, Fools. While I have made it my mission to think along these lines throughout the crisis -- as I've observed isolated characteristics of the event and sought to place each of them within a boader context -- I'd like to know your thoughts on this complex question.
Throughout your quest to make sense of what is transpiring (a quest we have all been forced to undertake in one form or another), what specific parallels or contrasts have jumped out at you personally? Again, because so much has been made of comparisons to Great Depression One, Japan, Weimar Germany, and even such vastly disparate events as the dot-com bubble or the 1970s inflationary event, I am more keenly interested in your take on ways in which specific historical events contrast to our predicament. They are many ... I believe the ways in which these events are utterly unprecedented will be shown in the final analysis to far outnumber the parallels that can be neatly drawn.
While listening to Bernanke, Paulson, Geithner, Frank, Bush, Obama or any of these guys portraying a response strategy that is entirely under control and proving effective in diminishing systemic risk, I continually sense that their confidence is merely an aire ... and that truthfully they're lost in an unknown wilderness with no familiar landmarks to guide them. I ascribe the complete failure of their collective responses to address the root causes of the crisis in part to this absence of a relevant map. Weimar and Zimbabwe may stand as stark reminders of potential consequences of their approach, and yet they continue down that road as if it's the only path they can find. A gold standard constrained the scale of potential fiscal response to Great Depression One, at least until Roosevelt removed that obstacle to increased spending. I've encountered too many diverse intepretations of Japan's experiences to permit simple comparing or contrasting, though to date I have considered many comparisons between our present experiences and those of Japan rather unconvincing. My own research has focused more heavily upon Great Depression One, and unfortunately I find that where our two Great Depressions differ materially, it is generally in ways that lead me to anticipate an event of much larger proportions this time around. It is, after all, different this time around.
Food for thought:
Bernanke recently exclaimed: "I was not going to be the Federal Reserve Chairman who presided over the second Great Depression". Meanwhile, this Fool imagines him qualifying the statement in his own head: "Leaving it for the next guy seemed a far superior option".
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