[OPE] Dr Doom and the recession: Humvee, Ute or Volkwagen curves?

Dr Roubini has a succinct summary about the current state of the recession
here (you can get it easily just via Google):

The risk of a double-dip recession is rising

By Nouriel Roubini

FT August 23 2009

(...) There are several arguments for a weak U-shaped recovery . Employment
is still falling sharply in the US and elsewhere – in advanced economies,
unemployment will be above 10 per cent by 2010. (...) There are also now two
reasons why there is a rising risk of a double-dip W-shaped recession. For a
start, there are risks associated with exit strategies from the massive
monetary and fiscal easing: policymakers are damned if they do and damned if
they don’t. If they take large fiscal deficits seriously and raise taxes,
cut spending and mop up excess liquidity soon, they would undermine recovery
and tip the economy back into stag-deflation (recession and deflation). But
if they maintain large budget deficits, bond market vigilantes will punish
policymakers. Then, inflationary expectations will increase, long-term
government bond yields would rise and borrowing rates will go up sharply,
leading to stagflation. Another reason to fear a double-dip recession is
that oil, energy and food prices are now rising faster than economic
fundamentals warrant, and could be driven higher by excessive liquidity
chasing assets and by speculative demand. Last year, oil at $145 a barrel
was a tipping point for the global economy, as it created negative terms of
trade and a disposable income shock for oil importing economies. The global
economy could not withstand another contractionary shock if similar
speculation drives oil rapidly towards $100 a barrel. In summary, the
recovery is likely to be anaemic and below trend in advanced economies and
there is a big risk of a double-dip recession.
http://www.ft.com/cms/s/90227fdc-900d-11de-bc59-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F90227fdc-900d-11de-bc59-00144feabdc0.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Feurope

This recession is not like most other recessions, because of the "credit
crunch". Well, who says economics cannot describe dialectical
contradictions? Dr Roubini does.

Here's Marx's wry comment from 1873:

"The contradictory movement of capitalist society makes itself felt to the
practical bourgeois in the vicissitudes of the periodic cycle, through which
modern industry moves, and whose crowning point is the general crisis."
http://www.marxists.org/archive/marx/works/1867-c1/p3.htm (I have corrected
the English translation, making it more accurate).

I suppose the curves will depend quite a bit on how speedily economic actors
can adjust to the new realities, under conditions of generalized
competition, where each of them tries to improve their own position, and
where some of them have greater margins for adjustment than others. The
problem is really, that some can adjust enormously faster than others,
causing uneven development.

It seems somewhat unlikely to me, that speculation would drive oil prices as
high as Dr Roubini projects, in these cautious, increasingly conservative
times, though food prices will increase and that is also a good reason we
should be looking more at human impacts of the recession. If a rich
bourgeois has lost one-third of his financial assets, his rate of return has
dropped by a quarter or a third, and his yearly income from financial assets
has been halved, then he's going to think twice about commiting funds to
speculative investments, he is likely to become more cautious in conditions
where even the best economists find it difficult to predict the outcome very
accurately. Paradoxically, at the very moment entrepreneurship is needed,
people become more cautious.

The most likely scenario is an economic path midway between the extremes Dr
Roubini indicates, which speaks in favour of his U shape, a saucer-like
recovery, though from my own theoretical perspective I would say it's more a
"psi" recovery, indicating thereby that while real GDP recovers,
simultaneously some economic actors go up and others go down in income and
position (the social aspect). In Chinese language, you might portray this
as an "i" (ai) recession, or in Thai language, perhaps a "so-rue-si"
recession. The Russian letter is a bit difficult to pronounce, it could be
pronounced in three different ways (?), I'm not quite so sure. You have to
be quite good in these languages, to spell the recession exactly right.
Unfortunately my linguistic abilities are too limited there, but anyway the
recession is really spelled a bit different in different languages, others
can do this better than me.

Jurriaan

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Received on Mon Aug 24 14:59:36 2009