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Wednesday, December 10, 2008

A crisis perspective

I attended a timely lecture tonight at the Museum of American Finance on "the descent of money" by Niall Ferguson, author of The Ascent of Money: A Financial History of the World. His basic question for the lecture was whether the financial crisis means a "post-American world" or "fall of the American empire." His basic answer: No. Because, ultimately, the U.S. can afford massive expenditures to get through the crisis. And because other nations, from Europe to Mideast oil exporters to the BRICs (Brazil, Russia, India, China) will be harder hit by the calamity than the U.S. will be, notwithstanding that the crisis was, in large part, created in the U.S. "Life is unfair," he added.

Asked what he would do if he were "car czar," Ferguson said that as "automobile autocrat" or "vehicle viceroy," he would put the U.S.-owned auto industry in a "hospice" to make its demise more comfortable. The carmakers, in his view, are a distraction from the more crucial question of bank solvency. He rejected (a bit too cavalierly, I think) thinking in terms of a dichotomy between market and state, noting that government has always had a role in the economy but also that much 1970s-era regulation was harmful and needed to be gotten rid of. As for what government should spend money on, he made, to my mind, pretty good sense: "Growth does not come from leveraged consumption. Growth comes from productivity-enhancing technological innovation."

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