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has provided an interesting comparison in the previous thread to gold towns which raises the same issues of "what happens next"? when gold prices go down, and the mono-industry can suddenly no longer sustain economic activity.

Are we oiling up so much the industrial machine that it might drown?

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Jun 19th, 2007 at 05:30:56 AM EST
According to economic theory, when gold prices go down, people and capital will move out of the gold town seeking a new "equilibrium" in greener pastures where all will be well. All the nasty stuff that happens to the people and the town between these two equilibria is just "friction" and would be eased by more "liberal reform" and less attachment to "sunk costs". Didn't they teach you anything in your Economics degree?

Can the last politician to go out the revolving door please turn the lights off?
by Migeru (migeru at eurotrib dot com) on Tue Jun 19th, 2007 at 05:35:03 AM EST
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I implied in one of my other comments in that diary that one of the first urges would be to invoke Schumpeter... and lo... there he is, invoked at the top of Wolf's column...
by Metatone (metatone [a|t] gmail (dot) com) on Tue Jun 19th, 2007 at 02:50:19 PM EST
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I should note that perhaps there are two sorts of issues here.

One is the one Wolf is happy to at least sort of acknowledge, if backhandedly: this system isn't tested... we don't know if it is really a "new stability" or just a soon to be disrupted confluence of circumstances.

The second, which Wolf doesn't seem to want to consider so much (although I didn't see the full article behind the subscription wall) is that of the Dutch Disease, (or the Gold disease, or the African diamond disease) whereby the rise of an industry with high returns starves other industries of growth/capital/political influence which sets the economy up for a rude shock when that industry stumbles.

by Metatone (metatone [a|t] gmail (dot) com) on Tue Jun 19th, 2007 at 02:58:10 PM EST
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