Tuesday, March 03, 2009

A Quick Economics Lesson

Paul Krugman discusses one theory for the Great Crash of 2009:

If you want to know where the global crisis came from, then, think of it this way: we're looking at the revenge of the glut.

And the saving glut is still out there. In fact, it's bigger than ever, now that suddenly impoverished consumers have rediscovered the virtues of thrift and the worldwide property boom, which provided an outlet for all those excess savings, has turned into a worldwide bust.

One way to look at the international situation right now is that we're suffering from a global paradox of thrift: around the world, desired saving exceeds the amount businesses are willing to invest. And the result is a global slump that leaves everyone worse off.

So that's how we got into this mess. And we're still looking for the way out.

So that's one theory about the reasons for the mess we are in. It's not the only one. The lack of proper guidelines and the almost-total absence of regulations certainly had its part to play. We went into global market anarchy with such a child-like eagerness! It always reminds me of the time I saw someone get on a moped for the first time, riding it around in large circles in the parking-lot and finally yelling, over the engine noise, to ask how you stop the damn thing. mmm.