Thursday, 18 June 2009

History Repeats Itself?

Rumours of an early economic rebound are everywhere. In several meetings with business leaders this week I have heard a consensus view along the lines of "recession - past tense" and "now that we are into the next phase". They could be right. But Martin Wolf at the FT points to the charts published by professor's Eichengreen (Berkeley) and O'Rourke (Trinity Dublin) comparing key economic indicators today with those following the 1929 crash on the Vox blog which are doing the rounds. Here are a few examples:

The recession is a real mixed blessing in sustainability terms. It has been welcomed as an opportunity to force a much deeper re-evaluation of the whole capitalist model and in particular find postgrowth economic policies which support wellbeing without planet destruction. World Changing just picked up the Kennedy line on this (cautiously touted around by Obama and his team) which is that GDP has little to do with real prosperity or wellbeing so why focus on it in the first place?

On the other hand it takes everyone's eyes (and potentially budgets) away from the REAL global crises. It's an excuse to put things off is one result of that. And also the moral foundation of sustainability (for instance; Stern's argument rested on intergenerational equity in the case of climate change) is ultimately a case of acting in a way that avoids inflicting avoidable suffering on other human beings, whether now or for future generations. Sustained recessions really hurt and they tend to hurt the most economically vulnerable first; for instance all of those relying on remittances from relatives working in the west and sending money home. Yes it could be a tough medicine which helps drive real change. And no we wouldnt wish it on any of our fellow human beings whose children are hungry tonight.

My suspicion looking at the graphs is that you could map any previous (eg early 90s recession) onto the 1929 curve and early in a recovery it would look exactly as shown. The illusion is that the graphs show that things might follow the same course. A picture of someone lying down and a dead person would look the same, it's what happens over the medium term that differs. Or we could really be into the so called "dead cat bounce' where fluctuations (due to rallies in an almost entirely speculative and/or confidence based market system) are being mistaken for real world economic change. What's really valuable in these charts though is putting all the 'rebound' claims in context. You couldnt honestly look at these graphs and say quite so confidently that we are out of the woods (whether or not as a treehugger you even quite like it in the woods).

It's been tricky writing about these issues through the last few months (in my new book) and I have ended up having to take a line which is current recession neutral. After all the credit crunch had nothing to do with climate change or resource crises. It was an internal matter and while it affects everything it's probably a little early to learn from it let alone plan around it?

I heard an FT journalist comment a few weeks ago that the recession was over for sure because Martin Wolf had written an unusually upbeat column, and - she argued - since he was at the most pessimistic end of the spectrum it surely meant things must be truning around. Very drole. But then surely on that basis (the Martin Wolf negativity index or MNWI), sorry but er... presumably the recession might be back on?

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