It is becoming increasingly common for commentators to overestimate the newness of key economic trends.
A striking example is the tendency to regard key problems in the American and British economies as new. It would be more accurate to see the current blatant weaknesses as a continuation of existing underlying trends.
Some of the more astute economic commentators, such as Stephen Roach of Morgan Stanley, had long made the point that the global economy was fundamentally unbalanced. America could only maintain its high levels of consumption as a result of huge capital flows from Asia and the Middle East.
Many wrongly saw this trend as a sign of America’s economic strength. The world was “flying on one engine” and the American consumer was providing the propulsion. It would have been more accurate to argue that Asian growth was propelling the world economy, including America, forward.
Britain’s weakness was disguised by City of London success. But the City’s revenues depended largely on international capital flows and institutions. When these started to dry up the weakness of Britain’s productive base was cruelly exposed.
Another trend with greater longevity than normally assumed is the demise of free market economics or “neo-liberalism”. Many commentators argue that the bail-outs of financial institutions signal an end to belief in the free market. In reality the idea of the free market died many years ago.
Western economies, including America and Britain, have long had a consensus in favour of what could be called a regulated market. They do not propose any alternative to capitalism but at the same time they support an extensive system of regulation. It is a long way from the minimal state advocated by staunch advocates of free market economics.
The reality of state intervention should be apparent from the high levels of public spending in both America and Britain. Such spending is inconsistent with a genuine free market.
Many of the key economic trends in the world today are far less new than is generally assumed. The only reason this is not widely understood is the impressionism of much of contemporary economics. The temptation to take things at their face value should be avoided.