At Investors' Insight, "A Tale of Two Depressions", by Barry Eichengreen (UC Berkeley) and Kevin O'Rourke (Trinity, Dublin).
The parallels drawn by Eichengreen and O'Rourke are sufficiently unnerving to drive one to think again about what is happening.
No matter how often you recite to yourself, "The fundamentals of the economy are 'sound' ", it's just wishful thinking. To talk about the "fundamentals", you need to identify what the fundamentals are and empirically examine their state and performance. Try not to confuse the symptoms, such as employment rate, with the fundamentals, such as freedom in the labor market. Try also not to confuse political economy with economics. What Obama and his economic advisors work from is a paradigm of political economy, not an economic paradigm. It is a paradigm that describes political construction of economic action; it is not a paradigm about the laws of the free market, the nature of private property, the function of contract, the psychology of motivation, the mobility of capital, and so on. It's the difference between tinkering with the steam engine and knowing the laws of thermodynamics and gas mechanics.
The lesson is, we are not out of the woods yet. I surely wish we were. I have an awfully lot riding on an end to this recession. I don't want a depression. But I am also sure that unless we do some deep thinking about economics, we can't be sure what governmental policies to enact. I am also confident that the crisis is not simply one of banking and finance.
Update. June 22, 2009. The stock market pulls back. The Wall Street Journal theorizes that investors are beginning to doubt that the fundamentals of global recovery are in place. We'll see how this plays out, obviously; but the pullback shows that some investors are doing more fundamental thinking than Obama and his Democratic political economy advisors.
Update. June 24, 2009. In an interview with CBS, Warren Buffett says the US economy is "in shambles". The economy is not yet poised for recovery.
I have discussed my concerns about distortion in the national economy here and here.
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