Belfast Telegraph

Wednesday 26 November 2014

Phraseology may be wrong but downward economic spiral is the same

As white knuckle rides go, current events in the financial and economic worlds must rival anything that Barry’s Amusements up in Portrush can offer.

Stock markets crashing, chief executives resigning, bank rates being cut, banks being taken over, Governments putting up guarantees, the current saga has it all.

Inevitably, comparisons have been drawn with the Wall Street Crash of 1929 and the subsequent Great Depression.

The basic ingredients were the same — greed, self-delusion, over-optimism, a refusal to accept that things can ever turn bad and castles built in the air.

The definitive work on the subject, as many commentators were pointing out last week, is The Great Crash by the noted economist, John Kenneth (JK) Galbraith.

First published in 1955, the book shows how the bubble burst but also reminds us that there is little new under the sun.

One telling extract reads: “Governments were either bemused as were the speculators or they deemed it unwise to be sane at a time when sanity exposed one to ridicule, condemnation for spoiling the game, or the threat of severe political retribution."

Indeed, it was a subject that was addressed by First Minister Peter Robinson during his recent address to the Institute of Bankers in Belfast.

He maintained that while the problems were serious, they were not of the magnitude of 1929 — although it has to be said that this speech was delivered a week ago.

But Robinson also borrowed an old line from JK Galbraith, even though he neglected to attribute it.

He told the bankers that as a former Finance Minister, he had learned to be cautious about what economists told him, saying that he was reminded there were some who have predicted six of the last two recessions.

It may be churlish to point this out, but according to good old Google, the actual quote was: “Economists have correctly predicted nine of the last five recessions.”

But let’s take comfort from the First Minister’s analysis. He said that during the 1930s more than 9,000 banks failed compared with fewer than 20 over the past couple of years. But as the downward spiral continues, who can say what lies ahead?

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