Chapter 1 The absorptive class

There have been times in recent years when it has seemed that the US economy, in particular, has defied economic gravity. This was certainly the case in the late nineties of the twentieth century. Many heaved a sigh of relief when the Nasdaq and the Dow responded to the pull of economic gravity and fell to earth in the early part of the twenty first century. The Earth at the time, in 2002, appeared to be indices of around 8,000 for the Dow and 1,250 for the Nasdaq. These measures still indicated huge wealth in terms of saleable bits of paper as well, indicating the underlying huge capacity of the real economy for creating surpluses. Both indices climbed back, though the Nasdaq was a long way from its astronomic former heights before the next (2007) crisis hit. True to the cyclical record of modern capitalism, however, by 2006 the US and the world stock markets were booming again. The nominal value of shares traded worldwide in 2006 by some estimates was nearly $70 trillion (Bogle, 2005). In 2007, another crisis appeared, ushered in supposedly by the collapse of the sub-prime mortgage market in the United States; subsequent events took their toll in economic and financial terms not only in the United States but worldwide in most of the major economies. The terms “credit crunch” and “sub-prime” had become so pervasive within a few weeks of the onset of the latest economic crisis that by July 2008, theConcise Oxford Dictionaryprovided definitions for them. While these terms are now embedded in the language of economics and everyday speech, inevitably the affected economies will recover from the crises and continue to grow. While there is no shortage of reasons posited for the latest crisis and those preceding it, far fewer explanations have been forwarded to tell us why economies survive economic shocks and, despite dire predictions and expressions of gloom, recent crises have not been as disastrous as was once the case, notably as in the Depression years of the 1930s. During the Depression of the Thirties, production fell by a third between 1929 and 1933, unemployment reached 13 million and even by 1938 one person in five were unemployed. No economist has predicted these dire consequences even for the crisis of 2007–2009. In 1999, Paul Krugman published his short book:The Return of Depression Economicsin which he not only reminded us of the 1930s Depression but suggested that the then economic crises bore an “eerie resemblance to the Great Depression.”1He retreats within a few pages and describes the events as the Great Recession because the global damage has been “well short of Depression levels” (Krugman, 1999). A decade later, Krugman, by then a Nobel laureate for economics in 2008, began his 2009 revised edition ofReturn of Depression Economicsthus: “The world economy is not in depression: it probably won't fall into depression (though I wish I could be completely sure about that)” (Krugman, 2009). By early January 2009, he surprised other economic commentators by using the term “depression” in hisNew York Timescolumn.