oldfart
Older than dirt
Those who are unfamiliar with the work of Irving Fisher can quickly catch up by reading the Wikipedia article on him. In explaining depressions, he developed the debt-deflation model which seems to fit a lot of historical downturns. In essence he argued that deflation, or even slowing and low levels of inflation increase the real burden of consumer and business debt, reducing demand and setting off a downward spiral leading from garden variety financial panics such as 1928--9 to deep and lasting depressions.
Unfortunately, at first he did not believe that the Panic of 1929 was such a case and supported Andrew Mellon in a failure of epic proportions. His reputation never recovered. From the forties on he became somewhat of a footnote in monetary thought because, well, no one could possibly be dumb enough to make the same mistake now. You see, prompt and effective public intervention in monetary and fiscal policy have prevented the development of a debt-deflation spiral resulting in semi-permanent depression for the last 75 years around the world.
But now the ghost of Irving Fisher has risen again, and with a vengeance. Misguided austerity in Europe has created a classic Fisherian debt-deflation cycle in the Europe zone and across Europe. The poster child for this is Sweden, which actually did rather well in riding out the financial storm until 2010, when it adopted austerity as the policy. The only dissenter was the deputy director of the Riksbank, who was summarily replaced for the unspeakable crime of being correct too early before the Very Wise People Who Are Never Wrong were locked into their error. Of course the VWPWANW never thought to reconsider as the Swedish economy sank. After all, they are Never Wrong. But at least the Swedes are not alone. Although the IMF has come to it senses, the political leadership of Europe forges ahead while economically Europe stagnates at best and is being surpassed by the rest of the world, developed and developing.
So somewhere Irving Fisher is smiling. His mistake was made with good intentions while he laid the intellectual groundwork for the solution. Eighty years later his successors have neither mitigation to clear their names.
Unfortunately, at first he did not believe that the Panic of 1929 was such a case and supported Andrew Mellon in a failure of epic proportions. His reputation never recovered. From the forties on he became somewhat of a footnote in monetary thought because, well, no one could possibly be dumb enough to make the same mistake now. You see, prompt and effective public intervention in monetary and fiscal policy have prevented the development of a debt-deflation spiral resulting in semi-permanent depression for the last 75 years around the world.
But now the ghost of Irving Fisher has risen again, and with a vengeance. Misguided austerity in Europe has created a classic Fisherian debt-deflation cycle in the Europe zone and across Europe. The poster child for this is Sweden, which actually did rather well in riding out the financial storm until 2010, when it adopted austerity as the policy. The only dissenter was the deputy director of the Riksbank, who was summarily replaced for the unspeakable crime of being correct too early before the Very Wise People Who Are Never Wrong were locked into their error. Of course the VWPWANW never thought to reconsider as the Swedish economy sank. After all, they are Never Wrong. But at least the Swedes are not alone. Although the IMF has come to it senses, the political leadership of Europe forges ahead while economically Europe stagnates at best and is being surpassed by the rest of the world, developed and developing.
So somewhere Irving Fisher is smiling. His mistake was made with good intentions while he laid the intellectual groundwork for the solution. Eighty years later his successors have neither mitigation to clear their names.
