LUCY VAN PELT ON THE FINANCIAL CRISIS. Lucy Van Pelt in PEANUTS once asked, “Why are there ups and downs? Why aren’t there just ups and ups and ups?†Economists differ on whether there could be ups and ups and ups. That is, they differ on whether the economy could find– with the help of wise policy makers—a long-term growth path so that excesses in either direction would be avoided. Imagine an economy that grew at about two or three per cent every year, with low inflation rates and low rates of unemployment. From time to time, various outside events (“exogenous eventsâ€) or mistakes in government policy might cause episodes of inflation or of excess unemployment, but such episodes are not inevitable. The alternative view, of course, is that booms and busts are the natural state of the economy. Kids, which way do you think of the economy?
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I think the occasional big downturn has to happen. Even when I was really ignorant about economics I didn’t think economies (no matter how advanced they might be) could build steam forever. I doubt I could have given a real reason for this belief.
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Essentially, I agree with Lee.
I wish I’d answered this as soon as I had the answer, because I was pondering this question in bed the other night after I read it. Alas, I remained in bed. Now I can’t remember the wording of my answer that well. I would say, though, that I have always assumed ups and downs would occur in markets… I don’t know where I got this assumption, but it’s a pretty old one. Trying to examine it now, I would say that ups and downs occur because of new products that take off or fail, old products that continue to sell well or to falter, and companies that acquire each other or don’t. Then there are the world events (notably disasters… do GOOD things affect markets as much as natural disasters and human-made attacks?) that affect markets.
If I remember the answer I came up with the other night while waiting for sleep, I will post it here.
Lucy Van Pelt also had this to say about her bout with the flu:
Other Person: Yes, I hear a lot of that is going around.
Lucy: But this is different. It’s happening to ME.