Darwin hit it on the nail when he wrote in ‘Origin of the Species’ that “Unless profitable variations occur, natural selection can do nothing“.
Warsh sets out to “debunk some popular truths that have become part of the crisis narrative“::
• “Subprime mortgages were not the core of the global crisis, they were only indicative of the dramatic mispricing of virtually every asset everywhere in the world“.
• “The volatility in financial markets is not the source of the problem, but a critical signpost.”
• “Excessive growth in government spending is not the economy’s salvation, but a principal foe.”
• “The European sovereign debt crisis is not upsetting the stability in financial markets; it is demonstrating how far we remain from a sustainable equilibrium.”
• “Turning private-sector liabilities into public-sector obligations may effectively buy time, but it alone buys neither stability nor prosperity over the horizon.”
Warsh believes we delude ourselves if we think today’s problems are essentially “a series of unrelated, unpredictable, unfortunate financial shocks” and due to “bad luck“.
He concludes by arguing that instead of continuing to focus on short-term ‘fixes’, “we should take the necessary measures to ensure that our economy is strong over the long term“.