Tuesday, August 18, 2009

Back to "normal"

Last September, the "greatest financial crisis since the Great Depression" began. At the time, and for months afterward, I thought that the world---at least as it pertains to the US, Japan, and China---had changed forever. You could read about it everywhere which, of course, made it true. The over-consumption of US consumers would stop now and forever; not just until the economy recovered. And the US government? It would have to start paying its own way and stop borrowing from overseas. Taxes would have to be raised.

Japan, which has relied on an export-driven economy for decades would no longer be able to do so with the reduction in consumption in the US. Without the ability to export unemployment rely on exports to the US, it would no longer be able to fund the US party.

I was so surprised (why?) by the developments of that fall and the early winter, that I actually started taking Paul Krugman seriously! (The Obama administration didn't. Points for Barack.) Fortunately, the crisis and the recession seem to be all but over now.

There have been a number of articles in the last 24 hours reporting that Japan may be* coming out of the recession and they point to...sigh...exports as driving the recovery. I guess that's no shock, what else would?

The expansion was in line with the 0.9 percent growth forecast that was the average of 10 economists surveyed last week. A 1.2 percent growth in public demand helped offset a 1.3 percent fall in demand from the private sector, the data showed. Overall domestic demand fell 0.7 percent from the previous quarter.

Recovery in these critical overseas markets whittled down inventories and released some pent-up demand, bolstering Japan’s exports of cars and electronics. Exports grew 6.3 percent from the previous quarter, while imports fell 5.1 percent. NYT

Strangely, for all of the monumental, historic changes that were said to be the likely result of the financial crisis, I can't find much about the US or Japan doing much to prepare for the new world. In the US, we can still have it both ways, government benefits and no tax increases except on some bad guys and the rest will be paid for with cuts in wasteful spending. In fact, they'll "pay for themselves." Bahahahahaha!

We've heard for at least 25 years that these sort of things can't go on forever, but then they do. Kind of makes economics seem like a social science heavily influenced or perhaps driven by political beliefs and a group of folks who---stealing a quote from here--- "think arithmetic is a substitute for reality." Oh wait...did I say seem like?

*A very iffy maybe.


  1. Jib Halyard6:39 AM

    You take a snipe at Krugman, and follow it by citing: "A 1.2 percent growth in public demand helped offset a 1.3 percent fall in demand from the private sector, the data showed."
    Isn't that a little contradictory?

  2. My reference to Krugman is mainly about his continued insistence until just a few weeks ago that the US needed to continue with much more spending.

    I am not implying that not that government stimulus/public spending was not necessary or that it was ineffective in either Japan or the US.