Friday, 21 November 2008

Boom and bust

Perhaps macroeconomics can be reduced to a few propositions: booms result in busts; the pain of busts is greater than the pleasure of booms; therefore everything should be done to prevent booms from getting any bigger than they have to. Ever since governments discovered that they could influence the economy, they have done the opposite: they have tried to make the booms get as big as possible. In the 1930s, when the world population was just over 2 billion, Keynes said it was all right to increase debt in order to go from bust to boom.

Now we realize that it isn't just the human world that suffers from the cycle of boom and bust. The whole planet is groaning under the weight of human demand. Back in 1972, when the world population was less than 4 billion, the Club of Rome report 'Limits to Growth' warned of the danger. President Jimmy Carter commissioned a study, 'Global 2000' to suggest how the US government should respond. But he was voted out in 1980, and we began 28 years of crazy efforts to grow. Now, with the world population at 6.7 billion - 220% bigger than for Keynes and 76% bigger than for the Club of Rome - we are rewarded with the biggest bust for eighty years. When will we ever learn?

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