Short-term Numbers. (Think Beyond)

Just as in every boom the bulls proclaim that “this time is different” — that the markets are fundamentally more stable than ever before — so in every slump, the pessimists insist that the world faces unprecedented disaster and that, just this time, the recession will not be followed by recovery as it always has before.

The cause of the current economic misery is an unprecedented credit crunch. But against these deflationary pressures there are equally unprecedented expansionary forces: the lowest interest rates in history; the fastest-ever fall in oil and commodity prices; the biggest-ever peace-time public works programmes; and, most importantly, a willingness and ability by governments and central banks to support their financial systems.

This crisis has therefore become a tug-of-war between two extraordinary forces. So what can we say about the outcome of this elemental battle?

We can only say one thing for certain: that no economist will accurately forecast the numerical result. However a reading of the major economic thinkers — Schumpeter, Hayek, Keynes, etc. — can remind us that in one way or another, the profit motive will ultimately triumph.