The Economist on the World Economy: The perils of incrementalism

Posted by Kendall Harmon

THE prognosis is looking ever more grave. What began 15 months ago with a seizure of the credit markets has become a disease with an alarming list of real economic symptoms. America, Britain, the euro zone and Japan are already in a recession that threatens to be the worst, in some places, for a quarter of a century and possibly since the Depression. American consumers, unable to borrow and fearful for their jobs, are cutting spending; so are firms, short of cash and worried about sales. German business confidence is at a 15-year low. Japan’s exports to both rich countries and emerging ones are falling. Emerging economies are suffering too, as commodity prices fall and capital flees faster than in those countries’ own crises of a decade ago. In some countries—notably the United States—a vicious deflationary spiral of banks withdrawing credit and demand contracting is no longer unimaginable.

Seeing the threat to the world economy’s vital functions, the policymakers have been working overtime. Interest rates have been cut dramatically. American rates are already down to 1%; Britain’s are at a 50-year low; and this week China’s central bank lopped 108 basis points off its main policy rate. Hundreds of billions have been pumped into banks and financial markets. Many financial institutions have been bailed out: the rescue of the once mighty Citigroup (see article) is merely the latest unthinkable to happen.

Despite all this, the patient has not responded. This is partly because some traditional remedies, such as looser monetary policy, are weakened in a credit crunch. It is also because the doctors have been ham-fisted....

Read it all.

Filed under: * Culture-Watch • Globalization • * Economics, Politics • Economy • The Credit Freeze Crisis of Fall 2008/The Recession of 2007--

6 Comments
Posted November 29, 2008 at 6:41 pm [Printer Friendly] [Print w/ comments]



1. Br. Michael wrote:

Can any economy that is dependent on people buying things that they don’t really need be healhy?

November 29, 7:14 pm | [comment link]
2. DonGander wrote:

“Despite all this, the patient has not responded. “

I probably study the economic situation better than most and I have tried a variety of ways to more acurately describe both the problem and the cure. I’d like to try again.

The above quote indicates that the economy is sick. Now, as a christian, how (IF it actually is sick) does this affect me? AND what EFFECT will it have on me? Well, if my duty, as a christian, is to produce good for my fellow man, isn’t there just as much opportunity to do so as before the economy got “sick”? Sure, I might not get paid as much for what I do but I will also likely be paying less for my needs and wants. But, again, as a christian, my duty is production for my neighbor. Perhaps he has MORE perceived needs now than before.

If we all keep pruducing, we will all have the same amount of goods and services to meet our needs and very many of our wants as before the economy got “sick”.

Actually, it is our congress that is sick and refuses to take any medicine. The desease will continue and get worse. But I, as a christian, do not have to catch their disease. I look forward, with joy, to meeting the needs of my fellow Man - and I look forward to God meeting each and every need that I have and then pouring blessings of every kind on me in addition. This is the spirit of Thanksgiving Day - it needs to be the spirit of every good christian.

Despair and faith can not live together in the same heart.

Don

November 29, 7:17 pm | [comment link]
3. Statmann wrote:

One possibility that the Economist has (deliberately?) overlooked is that much of the uncertainty and fear is because of Obama. Much of what he promised is not going to favor investment and/or increased work ethic.  Statmann

November 29, 8:26 pm | [comment link]
4. Mithrax+ wrote:

Perhaps there is a fundamental question that should be asked by ANY economist right now:

What is a normal economy?

And of course, it follows with:

How do we get there? (or, CAN we get there?)

Many assumptions are being made about what is a normal (and thusly a healthy economy) but I bet most of them cannot answer the first, and thusly, do not know how to answer the second.

November 29, 8:29 pm | [comment link]
5. vu82 wrote:

This could, maybe, be a sign of stabilization as The Economist is a famous lagging indicator.

November 30, 12:23 am | [comment link]
6. tgs wrote:

Br.Michael, a question also arises which is, can an economy that is dependent on government manipulation and control ever be healthy?

November 30, 12:42 pm | [comment link]
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