89 year old author, investment adviser, and former professor Peter Bernstein’s three “classics” from the 1960’s are being reissued this year with introductions from Paul Samuelson, Paul Volcker and Arthur Levitt, which itself is a certain testimonial to the man. His 1996 book, Against the Gods: The Remarkable Story of Risk, won a number of awards and was well reviewed in both the popular and academic press. He was interviewed in the WSJ on the current outlook, and sees protracted problems:

You don’t get into a mess without too much borrowing. It was sparked primarily by the hedge funds, which were both unregulated by government and in many ways unregulated by their owners, who gave their managers a very broad set of marching orders. It was a real delusion…

When you think about how all of this will work out in the long run, we are going to have an extremely risk-averse economy for a long time. The lesson has painfully been learned. That’s part of the problem going forward. You don’t have a high-growth exit from this, as you’ve had from other kinds of crises. We won’t have a powerful start, where the business cycle looks like a V. Here, the shape of the business cycle is like an L, where it goes down and doesn’t turn up. Or like a U, a flat U. The reason for that is that people aren’t going to get caught in this bind again. They will tell themselves, “I’m too smart to do that again.” And everyone else is going to be saying the same thing…

I’m a child of the Depression, and I am thinking about what the early years were like after World War II. It took a very long time to get the memory of the Depression out of business decisions, and certainly banking decisions. I think this is going to be the same. The Fed, too, is going to be less decisive and is going to feel that what it should do is less clear. One of the things that gave people a sense that they could afford to take risks was the sense that the central bankers more or less know what they are doing. But I don’t think we are going to feel that way going forward…

If China goes into a recession, God knows…Before, it was investment that made the V at the bottom of the business cycle. I don’t see real investment turning enough without some sign from the consumer side. Maybe the foreign countries will do it for us. That is a substitute for consumption here. Maybe. But I think that they won’t do enough for us, and maybe will be too infected by us to do it. But maybe growth in Asia will help us. The Asian thing is tremendously exciting.

We quote Mr. Bernstein because he sees a number of the same risks we do, and he too does not know how it will all turn out. It is fervently to be hoped that Asia picks up the slack and its growth is not derailed by the slowdowns present in the US and coming shortly to the Eurozone. But it is not at all clear that this can happen in a region so highly dependent on exports for its growth. It is certainly possible that we are nearer to the end than the beginning of the “one-shot adjustment” boost to non-inflationary growth from China and the other nations similarly situated. We’ll keep our fingers crossed that it really will be different this time.

This entry was posted on Saturday, April 26th, 2008 at 4:03 pm and is filed under China, EU, business. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.