Buffett vs Krugman: Economic Optimist vs Pessimist

When I hear Paul Krugman -brilliant nobel laureate economist – fret about the economy and global warming I’m always confused by what seem to me to be grossly overstated concerns about both the health of capitalism and the health of the planet in general.    Krugman’s views – to me – seem poisoned by the tendency of smart people to “overthink” problems and “understate” the potential for innovation and technology to rescue people from our foolishness.

A good example of this intellectual defect were the grossly overstated concerns back in the 70s that the earth simply could not sustain the inevitable population increase, and we’d have massive starvation and horrors … by now.       Although it’s VERY important to note how poor many people are in the world, this is NOT at all a function of carrying capacity of the planet and does NOT lead one to the conclusion “don’t feed or they will breed” which is nonsense.  That view is fundamentally naive and misguided and I’m amazed how many people still cling to it – extensive research now makes it crystal clear that the best path to lower birth rates and better quality of life is poverty reduction, education, and health initiatives in the developing world.

But let’s go back to the health of the economy.   Buffet’s the man to listen to, not Krugman: Buffet on Economy

Obviously these are still perilous times, but fretting isn’t called for.    It’s time to fret less and innovate more.   Let’s GO.

Will 2010s be like 1930s? I sure hope not.

Wow.   I thought the crash in October 1929 brought the market down to  the low levels that signalled the great depression.  So I was surprised to learn that after a large rebound in the DOW it was really the declines of 1930 that brought the DOW down into the depression era numbers.   Look at the 1920’s rise of the DOW and fall to about 250 after the crash of October 1929:  Graphs Source is Dow Jones Indexes

Now comes the scary part.    Post crash DOW of about 199 was about FIVE TIMES the DOW lows seen during the great depression with a DOW at 41 (yes, that would be forty-one) in 1932.

OF COURSE you can overgeneralize from the depression data.   Today billions of shares trade in a market far greater than at that time, the global economy is totally different, etc, etc.

However what really concerns me is the fact that the drops we’ve seen of some 40% from DOW highs of the late 1990s look more like the 1929 prelude to a depression than I’d been thinking.   Are we in for just the modest rebound we’ve seen from the market lows of a few years ago and then a long slide into economic despair?    Is this even knowable?

Warren Buffett, in an excellent interview on Charlie Rose a few days ago, seemed to think that the bailout / rescue plan will avert a catastrophe, but he was clearly thinking there was at least some trouble ahead bailout or not.