Panic in the sunlight

mercredi 4 mars 2009 ·

Voici un article que j'ai soumis au National Post et au Financial Post en espérant qu'il soit accepté.

Prenez plaisir
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After reading the details of the stimulus bill in the United States, the federal deficit in Canada and the upcoming deficits in Quebec and other provinces, I began to wonder why I was the only one to see this as absolutely normal. After all I had grown like anybody familiar with economics and public choice theory to think that economic irrationality is highly reasonable in political markets. A nice way to summarize this is a saying from a former teacher of mine who used to say that governments always have crazy solutions ready that are only waiting for problems. So governments multiply bailouts and rescue plans which dwarf the spending levels of World War II, the New Deal, the War in Iraq and many more. They already had the solution and a relatively small crisis provided the problem that politicians were looking for.

Is there really such a problem? It seems that after years of sustained growth, we have forgotten that recessions are part of the business cycle and of the self-correcting mechanisms of the economy. On top of this, if you look at the data from the National Bureau of Economic Research in the United States, you can see that recessions have declined in duration and degree(even this one seems mild by certain standards) while expansion periods have lengthened and strengthened. Unemployment levels in Canada or the United States are no way near the 1981 levels to which everyone wants to make comparison and even job losses as a percentage of the labor force is equal to 1981 recession at 2.2%. To add to this, inflation is no way near the levels seen in other recessions since World War II. As to the situation of banks, American economist Mark Perry took the data from the Federal Deposit Insurance Corporation (FDIC) and from it, we can see that now we are no way near the number of problems banks as we had during the 1990 recession even though there are more than in the 2001 one. Sure, the situation is not rosy but all the fear mongering is pure non-sense from doomsday apologists or industrial fat cats seeking corporate welfare.

Economic history also sheds light on what must not be done to “rescue” the economy; fiscal stimulus, bailing out industries, subsidizing left and right are amongst those. It also teaches us that the idea that even the smartest genius on Earth, much less parliament and congress, cannot conceive the solution to “save” the economy. Nobody possesses that knowledge and it is better to let things unfold without interference. A nice example has been provided by Murray Rothbard who analyzed the 1819-21 recessions in the United States to conclude that the absolute lack of government intervention (because bad legislation failed to pass) made the panic end quickly and peacefully. In contrast, the Great depression was, in the opinion of Lee Ohanian and Harold Cole, lengthened by seven years because of the New Deal.

The evidence is there, lying under the sun light for everyone to see except the government of course. So governments are panicking in the sunlight, they resort to fear mongering by saying that this is an “unprecedented crisis”. Even economist Christina Romer (now that she is in government) is doing the contrary of what she said in her own research on fiscal stimulus. They seem to be trying to block the sun like Montgomery Burns in that Simpson episode. This way, they obscure the facts from history and then they can say that they have the solution and they, unlike other political parties, are getting things done. In that sense, it is rational for them to panic and to propose already tested-and-failed solutions under new branding.

When you are in the dark and you can’t see where the hell you’re going, that qualifies as a good situation to panic but panicking in the sunlight and trying to block the sun qualifies as political rationality.

The author is an economics and political science student at Université de Montréal

3 commentaires:

louisp a dit…
4 mars 2009 à 10:18  

"Is there really such a problem? It seems that after years of sustained growth, we have forgotten that recessions are part of the business cycle and of the self-correcting mechanisms of the economy. "

Ok is the business cycle efficient?

Si tu réussis à répondre à cette question là...go go mon Vincent t'as un Nobel.
Tu peux toujours regarder les trucs RBC...mais ça c'est un cul-de-sac intellectuel ridicule. Anyways on le sait bien(alerte sarcasme)...la crise actuelle est sûrement causée(dans le monde de Prescott) par le fait que les gens ont décidé de travailler moins qu'il y a 2 ans...ou que collectivement nous avons oublié une technologie!! Peut-être que c'est dans le secteur financier...qui sait.
Alors nous assistons à une jolie récession efficiente et "self-correcting".

D'ailleurs tu devrais regarder probablement d'où vient le "sustained growth", ça devrait te donner une bonne idée jusqu'où ça peut encore descendre en terme de GDP et de chômage.

louisp a dit…
4 mars 2009 à 11:39  

Pis je pense à ça: "On top of this, if you look at the data from the National Bureau of Economic Research in the United States, you can see that recessions have declined in duration and degree(even this one seems mild by certain standards) while expansion periods have lengthened and strengthened."

Donc, les récessions plus courtes ont été laissés à elles-même?
Il n'y a pas eu de baisses de taxes, de dépenses gouvernementales ou d'intervention de la banque centrale???

Les récessions étaient courtes par magie? ou tu utilises que deux observations que pour faire ton opinion?

Et pour Romer..et bien justement ya personne de mieux placer pour connaître les limites de sa recherche. Elle connaît les données qu'elle a utilisé, les circonstance des événements et même les hypothèses qu'elle utilise pour dériver ses modèles.

D'accord pour le pork du stimulus package...mais faut pas dire n'importe quoi non plus.

Anonyme a dit…
6 mars 2009 à 21:00  

Les quatre millions d'américains qui viennent tout juste de perdre leurs emplois et les 10 000 ménages par jour qui perdent leurs maisons te remercient d'avoir qualifié la situation actuelle de normale et nécessaire. Ce système fonctionne très bien.. ça saute aux yeux.

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Bryan Breguet est candidat au doctorat en sciences économiques à l’université de Colombie-Britannique. D’origine Suisse, il a passé les cinq dernières années au Québec au cours desquelles il s’est engagé en politique provinciale malgré le fait qu’il ne possédait pas encore la citoyenneté canadienne. Il détient un B.Sc en économie et politique ainsi qu’une maitrise en sciences économiques de l’université de Montréal. Récipiendaire de plusieurs prix d’excellences et bourses, il connaît bien les méthodes quantitatives et leurs applications à la politique.







Vincent Geloso holds a master’s degree in economic history from the London School of Economics, with a focus on business cycles, international development, labor markets in preindustrial Europe and the new institutional economics. His research work examined the economic history of the province of Quebec from 1920 to 1960. He holds a bachelor’s degree in economics and political science from the Université de Montréal. He has also studied in the United States at the Washington Centre for Academic Seminars and Internships. Mr. Geloso has been an intern for the Prime Minister’s cabinet in Ottawa and for the National Post. He has also been the recipient of a fellowship from the Institute for Humane Studies and an international mobility bursary from the Ministère des Relations internationales du Québec. Currently, he is an economist at the Montreal Economic Institute.

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