Our Fault, and Their Fault for Acting
I was captivated by William Voegeli’s quick post at the Corner at National Review Online this morning. He starts off with this salient point, that is often overlooked in the discussions on the current economic downturn.
It’s becoming increasingly clear that this recession is different. An economic contraction after a financial panic is a wealth recession, not an income recession. Households and businesses had borrowed too much money, acting as if they were richer they really were. The de-leveraging necessary to restore a sound economy, however much we and the politicians who appeal to us would like it to be otherwise, will be a slow process. All of the public policy ideas that want to hasten this re-set, like stimulus packages, require the federal government to offset the de-leveraging of private enterprises and citizens by leveraging its own sovereignty more and more aggressively.
Okay, I’ll first admit that I had to read it three times to understand it. But I like it now. It points out a very true fact that most people don’t realize. It was people borrowing money for personal and business reasons that got us into trouble in the first place. The big Internet downturn at the beginning of the decade was more an exuberance for something new that fell to earth. This was our exuberance for money on the promise that it would turn to more. And when it fell, we came with it. Recovering from our own expecations will take time, and the government is trying to hasten our own recovery. That’s almost like asking us to whip through the stages of grief by taking us out for lunch… on us.
Voegeli also makes a great point that all this borrowing is only going to make us leery of the debt we’re incurring. After all, it was debt that got us into trouble in the first place. But he points out that the administration doesn’t really have any decent ideas other than spending. And he uses one of my favorite analogies:
Every problem is a nail when your only tool is a hammer. The Obama administration did not want to let the economic crisis it walked into after the 2008 election go to waste, and it used classic Keynesian policies to restore aggregate demand . . . and sweep in as many items that had been languishing for decades on the Democratic party’s to-do list as it could. The arguments that we would be better off now if the 2009 stimulus had been much bigger refuse to acknowledge the possibility that the unique features of our current economic situation have rendered such initiatives expensive irrelevancies.
So the administration could only find one tool, and it looked like a good one. Other than the fact that we were already smarting from whacking our own fingers…
I still wonder if the current congress and administration will realize that they need more than one way to solve the problem before we actually believe they’re trying to solve it.