In 2003 Steven Strogatz published an incredible book called Sync: The emerging science of spontaneous order, he which he explores the hidden forces that causes phenomena as diverse as pendulum clocks and fireflies to synchronize with each other. In the initial example, the fireflies, Strogatz relays the documentation of 50 years of observations of thousands of fireflies in the tidal rivers of Malaysia. The necessary feature of these synchronizations is that the fireflies oscillated; that is, they shared an on-state and an off-state.
Research on natural biological rhythms leads to very interesting insights into consciousness. For example, in the absence of external cues like sunlight or watches, our sleeping patterns become jagged and eventually line up with our body temperature. Interestingly, body temperature and cortisol levels have a rock solid pattern that is slightly longer than 24 h. Experts in consciousness and neuroscience are currently investigating the contribution of sleep to the encoding of memories, with the broad hypothesis being that the hippocampus, a part of the brain that is involved with learning, replays events of the previous day to the cortex for the storage of long-term memories. It has also been shown that taking a nap immediately after studying improves memory retention, providing further evidence that ideal mental performance requires oscillation in states of consciousness.
Shrewd observers throughout history have noted that these oscillatory states of productivity are by no means isolated to individual organisms. As early as the book of Genesis it was noted that (in chapter 41)
“Seven cows came up out of the river, fine looking and fat; and they fed in the meadow.
Then behold, seven other cows came up after them, poor and very ugly and gaunt, such ugliness as I have never seen in all the land of Egypt.
And the gaunt and ugly cows ate up the first seven, the fat cows.
When they had eaten them up, no one would have known that they had eaten them, for they were just as ugly as at the beginning.”
That is the first description of the business cycle of which I have knowledge, and far more wisdom is in that saying than what is currently in the book of Newsweek.
Consider this whopper by Zakaria:
We just can’t accept the downswings that used to be routine for Western countries in the 19th century, when we saw much less intervention by the government. Can you imagine the political fallout from 20 percent unemployment or 5 percent growth rates? The government must experiment with massive interventions in the market to ensure credit starts flowing smoothly again. These interventions have become part and parcel of modern capitalism.
That “massive” bit of hubris and ignorance aside (remember the first description of business cycles is at least some 40 centuries old now), it isn’t that the professional pundits at Newsweek are ineffective or dishonest, it is just that almost all of their suggestions for long term policy don’t match their support for short term “Massive Government Interventions” Fareed Zakaria’s diagnosis is correct in his article on the silver lining of the crisis.
Every city, county and state has wanted to preserve its
proliferating operations yet not raise taxes. How to square this circle? By
borrowing, using ever more elaborate financial instruments.
If there is a lesson to be taken from this crisis, it’s an old rule:
There is no free lunch. Now, debt is not a bad thing. Used responsibly, it
is at the heart of modern capitalism. But hiding mountains of debt in
complex instruments is an invitation to irresponsible behavior.
However, it is Zakaria’s prognosis (and a similar one made by Robert Samuelson), that is dangerous and is only kicking the can down the road, probably only a few months at worst. Newsweek is afraid of deleveraging, that is, that too many people in our society will shift money out of credit and into capital. This is what Samuelson terms the “engine of mayhem”. Both Zakaria and Samuelson treat deleveraging as if it were a republican running for president they way they whip up fear about it. According to them, the only answer to America’s credit problem is extending the credit line (but don’t worry it is only for the short term!), not investing in more capital. Outlets like the NY Times and Newsweek pay lip service to the virtue of saving money while informing us that we could actually be getting paid to take out a loan at these low, low rates. Sadly, the Fed is following this line of thinking, encouraging Americans to save more money while keeping interest rates at near zero.
Early on in this crisis there were many analogies to the emergency room, in which we had to save the patient before we could worry about prevention of the next crisis.
That is the wrong analogy. The American economy is in the emergency room, but because of sleep deprivation. The solution is not several shots of coffee followed by a mainline of norepinephrine. The solution is a nap. Because the longer you sleep deprive a subject the more comatose he is likely to be when he hits the bed.