In these days of Keynesian ascendancy, you don't often see an economist arguing simultaneously for "expansionary macroeconomic policies" (translation: spend, spend spend!) while recommending that we return to Milton Friedman for insight into our current problems.
But that's exactly what Jeffrey Sachs does in his January Scientific American column, "Blackouts and Cascading Failures."
As policy makers now begin to revamp global financial and economic systems, they would be wise to consult the classic analysis of the Great Depression by economists Milton Friedman and Anna Schwartz in "A Monetary History of the United States." "[E]economic collapse," they wrote, "often has the character of a cumulative process. Let it go beyond a certain point, and it will tend for a time to gain strength from its own development as its effects spread and return to intensify the process of collapse. Because no great strength would be required to hold back the rock that starts a landslide, it does not follow that the landslide will not be of major proportions."
The rock, in this case, would be the popping of the housing bubble, an inevitable event that by itself, did not necessarily imply a global economic crash. But the cascading failures that have rippled out from that initial disturbance truly qualify as a landslide of major proportions.
What Sachs does not say, although it is implicit in his call for major expansionary monetary and fiscal policy throughout the world, is that it is a heck of lot harder to stop a landslide than to start one.