Just to interrupt this unfortunate deluge; something from the Ozzie Austro-Right - any comments?
Cheers, Rob.
http://www.newaus.com.au/econ161us.html
Is the US economy really slowing down? by Gerard Jackson TNA News with Commentary Monday 30 October 2000
In certain situations timing is everything. Unfortunately, timing economic change is something that economics cannot really do. "Will there be a recession?" "Yes". "When?" "Dunno". "Well, anyone can say that without spending four years at university", is the usual retort. And it's absolutely right. But this only demonstrates the complexity of the phenomena with which economics deals. Just like doctors who diagnose a terminal disease, they know it will kill you but their timing of when is sometimes way out, very way out, and this is not through reason of faulty science, just imperfect science. But that does not mean people should reject medical advice, and most people have enough sense to know that.
Economics can be very much like medicine (if this is beginning to sound self-serving, it's because it is) in that economics (good economics, that is) can chart the course of an economic disease, explain its causes, describe its symptoms and prescribe a cure. What brought about this reflection is the Fed's "price rule" and the reported fall in industrial commodities like timber and metals, what the Austrians always call intermediary goods which are also capital goods.
Now when we are faced with falling intermediary goods it means their industries are either already in recession or are sliding into it, which is exactly what has been reported. When this slide actually began I do not know, though I did say last year that figures indicated such an event by December, then later in the year Greenspan gave the country a massive monetary injection. But as any drug addict will tell you, the more you take the more you need once the effects wear off. My point is that if the figures are accurate then Greenspan's monetary "shot in the arm" has well and truly run its course and there is no likelihood of further monetary injections given the known consequences. Moreover, early this year I wrote: "I've been told that at the moment cash is contracting at an annualised rate of 22 per cent. If this figure is accurate and the rate persistent there is going to be one hell of a financial hangover." +(The American economy: what goes up will come down, No. 153, 8-14 May 2000)
Reported falls in industrial output support Austrian analysis which predicts that the recession will be felt first in the higher stages of production with consumption goods industries being the last to feel its effects. That is why, surprisingly to some, the car industry has not yet felt its impact, at least not to any great extent. The reason is that despite it capital intensity the car industry is very close to the final stage of production, unlike, for example, steel production. It should be remembered, but seldom is, that in 1929 industrial production was already beginning to slow in June, some months before the economy went into deep recession, not that I'm predicting another Great Depression - I'm not.
Some think that recession in the capital goods industries is being concealed by the manner in which America's GDP is calculated. Be that as it may, one should also take note of the fact that consumer spending has still been steaming ahead, just as Austrian economics predicts, despite the reported industrial slowdowns. So I'm of the opinion that increased consumer spending can conceal for a short time severe downturns in other parts of the economy thus leading to erroneous, and perhaps optimistic, conclusions about the economy's actual progress. This error is due to substituting aggregates for economic reasoning.
Austrian analysis on these matters, however, is quite alien to most economists, which brings me to the "price rule", according to which the Fed will not allow rising oil prices to cause a general prices rise. This means that if oil prices continue their upward trend then the prices of other goods must fall in order to maintain the price level and thus avoid inflation. It also means the economy must slide into a recession.
But this argument is just convoluted thinking. What is really being said is that the Fed has a policy of not printing money to accommodate rising oil prices. In other words, those who describe the effects of the "price rule" do not realise they have inadvertently admitted that current oil prices are having a deflationary effect. This is because much of the oil is imported, meaning that dollars are being exported for oil. In any case, using an accommodating monetary policy to underwrite oil prices only causes employment to be maintained for a time by reducing real incomes. In addition, the monetary expansion makes things worse by distorting production and which will only add to the country's economic woes.
So, regarding the title of this article, the answer is yes - if the figures are right. But there a certain historical irony could emerge here: we could see a triumphant George W. Bush enter the White House just after the economy sinks into recession, leaving the Democrats to take the blame, just as the Republicans got the blame for the 1929 crash and subsequent depression. But then, maybe not.