Remora
I recommend reading the Far Eastern Economic Review this week -- a lot of the articles are on line, and the magazine, which is owned by Dow Jones, is pretty on spot about Asian issues. And the war or non-war or shadow war or whatever thing looming and lurching towards us like the as yet unseen serial killer in a teen slasher flick is definitely a classic, Kipling style East of the Suez deal.

There's a piece by Enzio von Pfeil which inadvertantly shows how tightly superstition and art are intertwined in economics:
THE 5TH COLUMN -- September 27, 2001

Economics, for the past two weeks, has publicly put on its consolatory face, while underneath the investors, the electronic herd once lauded by Tom Friedman, have been running off various cliffs. Like almost all post-Keynsian econ-masters, von Pfeil actually seems to believe in the hoary chestnuts of monetary theory, and retails such bogus analogies as the following:

"Policy mixes involve monetary and fiscal measures. On the monetary front, the world's leading central banks have been injecting more liquidity into the system, intensifying an existing excess supply of money. In the United States, the Federal Reserve pre-emptively slashed rates ahead of the stockmarket reopening. This was expected, and already had resulted earlier in even firmer bond prices, driving down yields. Lower yields mean even lower mortgage rates--and so, eventually, up go housing starts and with them, consumption. True, in the near term, people won't be spending. But once the dust settles, lower rates will fuel consumption. Looking back at the U.S. on its entry into World War II, we see that though consumption fell 2% in the first full year following, it accelerated each year after until 1945, by 2.6%, 3.6% and 7%, respectively. Slowing consumption will be a temporary setback. Like in World War II, people will adjust."
Anybody who believes the logic here is chemical -- just add element X to Element Y and get compund Z - should take a glance at Von Pfeil's proof. The WWII analogy is, to say the least, bizarre. In the US, the necessary gross expansion of military industrial output to meet the needs of the war in the 40-45 period was extraordinary. To think that the pattern of consumption had to do with the hypodermic of Fed policy -- the trickle trickle into the bloodstream of easy money -- is close to insane. And to think that the shadow war is going to cause the Government to rev up its old warplane factories in Washington State is so off the mark that one wonders if von Pfeil wrote this passage in his sleep. There is a kind of analogical desperation behind this -- one selects one's historical comparisons after one has one's theory down, rather like the alchemists used to do to prove that at some point in the past, some esoteric master did, after all, transform base metals into gold.

For a more reasonable analogy, look at what Japan's central bank did in the nineties -- an unprecedented amount of pump priming. That did no good -- and the reason? The Japanese consumer wasn't prepared to take on the kind of debts the American consumer doesn't even give a second thought to. The recession, if we have one, is not going to be managed by a Central Bank.