Against the crash - why I'm optimistic

Just a few months ago Paul Krugman thought 2010 looked pretty good...

Krugman - Life Without Bubbles - Dec 2008

... Late next year the economy should begin to stabilize, and I’m fairly optimistic about 2010....

Not so much recently ...

Failing the test - Paul Krugman Blog - Mar 2 2009

It’s a depressing spectacle: on both sides of the Atlantic, policy-makers just keep falling short — and the odds that this slump really will turn into Great Depression II keep rising.

In Europe, leaders rejected pleas for a comprehensive rescue plan for troubled East European economies..

... Oh, and Jean-Claude Trichet says that there is no deflation threat in Europe...

... On this side of the Atlantic, Tim Geithner seems committed to the view that banks should stay private even if they’re bankrupt, because — well, just because...

Personally, I'm strangely optimistic. I even suspect Krugman is more optimistic than he seems -- he has to keep the heat on because he can. I don't have to worry about misusing influence.

So where does the optimism come from?

Quickly ...

• Yes, the big banks and most of Wall Street was crazed and stupid, and we're funneling money from the worst to the almost as bad. On the other hand, although much value was illusory, some people won real things. So at the end of the day who's far ahead, in real terms, of where they were in 1994? China, Russia and India. That's a lot of poverty alleviated, and a lot of creativity engaged.
• Based on share price we're more or less back in 1997. Does anyone think our productive and global capacity is the same as 1997? No bloody way. Shares were a bit out of line in 1997, but they didn't go crackers until 1999. Today shares are underpriced.
• There's a huge amount of technological innovation in the pipeline, and we're going to need it to survive climate changes and population explosion. So there's innovation supply, huge innovation demand, and work to do.
• We've only begun to exploit the power of computing and communications technology. We're roughly at the same stage as early electrification or the early telephone. The big gains are ahead.
• The world is more or less at peace these days.
• Obama. Damn, we didn't deserve that piece of luck.
• The causes of the crash are fixable: My best take is that there were at least 10 reinforcing contributing factors. In other words, the crash of 2008, like murder and abortion rates and mega-terrorism, was a non-linear (chaotic system) outcome. It's not fully predictable, but, given the reinforcing causes it was highly likely. That means, like murder rates, it can reverse course dramatically.
• Marketarianism: Sure, I mock the Marketarians and their mystical belief in the power of markets to solve problems. On the other hand, we're in the territory where self-preservation and markets tend to line up. Krugman isn't in a position to say "we don't understand the economic system we exist in", but since I know far less about economics (but perhaps more about humility?) I can say that. We don't understand the vastly complex world economic system. That leaves some room for Marketarian optimism.
• The X-Factor: I really don't see how a swarming nest of violent primates survived the development of fusion weapons. There's clearly something going on here I don't get.
• Limbaugh and the Party of Limbaugh are outraged by Obama's fixes. So they must be good.
  

So color me optimistic.

Dow 9000 by November 2009.