Recovery or Unsustainable Boom?
When you can’t be sure, remember that whatever the government tells you… it’s the opposite.
The Economist reports that:
“THERE are tantalising signs of good news in the world economy. In America firms are hiring more and consumers are spending more. The euro zone’s recession is proving milder than expected. Greece’s debt restructuring, the first sovereign default in a developed economy for 60 years, has passed off without a hitch. Cheered by the signs of recovery, and relieved that disaster has been avoided (particularly in Europe, which towards the end of last year seemed on the brink of a calamity of Lehman-like magnitude), financial markets have been climbing steadily higher. The MSCI global share index is up by almost 9% since the beginning of the year and by 20% since its lows last October.”
“Firms are hiring more,” and “consumers are spending more”? Isn’t this what happens in an unsustainable boom that ultimately becomes a bust? The aggregate approach to economics conceals the sustainability of the economic performance. When the economy is sound and growing, economic indicators reflect a good performance. But the fact that economic indicators show a good performance does not imply that the economy is sound and growing. If it rains, we can deduce that the floor will be wet, but from the fact that the floor is wet, we can’t deduce that it has rained; other explanations different than rain can account for a wet floor.
The same happens with economic indicators. The excessive focus on macroeconomic behavior overlooks the soundness and consistency of the economic foundations. A deeper knowledge is needed to understand what drives the behavior of macroeconomic variables. High levels of debt, fiscal deficits, low interest rates (and in some cases negative real interest rates) point more to the presence of an unsustainable boom than real recovery.
Nicolas Cachanosky is a doctoral student in economics at Suffolk University, as well as a previous Sound Money Essay Contest winner.
image: freedigitalphotos.net/graur razvan ionut
Nicolás Cachanosky
Dr. Cachanosky is Associate Professor of Economics and Director of the Center for Free Enterprise at The University of Texas at El Paso Woody L. Hunt College of Business. He is also Fellow of the UCEMA Friedman-Hayek Center for the Study of a Free Society. He served as President of the Association of Private Enterprise Education (APEE, 2021-2022) and in the Board of Directors at the Mont Pelerin Society (MPS, 2018-2022).
He earned a Licentiate in Economics from the Pontificia Universidad Católica Argentina, a M.A. in Economics and Political Sciences from the Escuela Superior de Economía y Administración de Empresas (ESEADE), and his Ph.D. in Economics from Suffolk University, Boston, MA.
Dr. Cachanosky is author of Reflexiones Sobre la Economía Argentina (Instituto Acton Argentina, 2017), Monetary Equilibrium and Nominal Income Targeting (Routledge, 2019), and co-author of Austrian Capital Theory: A Modern Survey of the Essentials (Cambridge University Press, 2019), Capital and Finance: Theory and History (Routledge, 2020), and Dolarización: Una Solución para la Argentina (Editorial Claridad, 2022).
Dr. Cachanosky’s research has been published in outlets such as Journal of Economic Behavior & Organization, Public Choice, Journal of Institutional Economics, Quarterly Review of Economics and Finance, and Journal of the History of Economic Thought among other outlets.
