Another Voice

28 March 2009

In economics, as in meteorology, the basic theory is both boring and largely useless

In economics and perhaps in other areas of politics too, they concern the psychological equivalents to friction, inertia, overrun and bounce: the restraining effects of human caution followed by the over-exuberance caused by the false confidence of herds; the dangerous amplification of cycles when attempts to brake or dampen a swing in one direction are applied too late and produce an exaggerated swing back the other way. They concern above all (I suppose) the critical nature of time lags.

I left school wondering why there were storms, and supposing that the movement of capital and labour, and of supply and demand, would be like a lava lamp: gentle, explicable, predictable. I look out of my window now enthralled by the gale, and staggered by the way the economic world I thought I knew has billowed, then imploded. ‘No return to boom and bust’ indeed. What arrant, ignorant nonsense. It’s all boom and bust, all billow and implode, all wax and wane and ebb and flow and come and go and to and fro. Basic physics and basic economics stop short just as things go haywire. Just as the bouncing starts.