We have moved from talk of bailouts to massive economic stimulus packages without any intervening discussion. Somewhere in that transition I got lost.
I understand a bailout of banks. Capitalism without capital is like a party without people. If banks collapse, so will credit markets. But a credit crisis is different from a slow down. (Related, sure, but different.)
Unemployment in October hit 6.5 percent – up from 6.1 percent in September. This is not good news but it hardly seems like justification for spending another trillion or so to “stimulate” the economy as Obama's people are suggesting.
Remember how Afghanistan became Iraq without any backward glance? The Taliban hatched the plot for 9-11 and we overthrew the government that coddled them. That made sense. And then suddenly, we were headed to Iraq. No one could ever explain to me (sorry Davos – that includes you) why this was not the grandest non sequitur of all foreign policy blunders.
Today, I get a similar feeling about this talk of economic revival. We’re supposed to believe that 6.5% unemployment is historic, is awful, and requires an unprecedentedly huge stimulus package? Back in the early 80s, when I was doing my undergrad in economics, 6% unemployment was considered the "natural" rate - the percent of the work force that would probably be unemployed at any given time.
Economic stimulus is a completely different topic than propping up credit markets. Sadly, no one covering the news seems to make this distinction.
Households have been saving 0% of income for years. Now they are spending less. Spending less is a good thing - adjusting us towards something sustainable. A recession seems unavoidable as the economy adjusts to this new reality. This is not a bad thing – just an awkward thing. Like puberty.
Unemployment will go up more. So, we should extend unemployment benefits, fund education and retraining. We should make it easier on the poor and those who are struggling. These ought not to be short-term measures, though. This should be normal policy. And distinct from spending trillions.
Meanwhile, it might be worth considering the possibility that borrowing huge sums of money to fund government spending might not be the best reaction to narrowly averting a credit collapse.
Obama’s team of advisers is talking about spending another trillion or two (or three) – in addition to what has already been spent. To stimulate the economy?
Am I the only one who doesn’t see a recession stemming from a shift in the economy as different from a near collapse of credit markets? And I was so convinced that once Obama was elected I would stop feeling like I was from Mars and policy makers were from (“it’s not even a planet!”) Pluto.
Sigh. At least I'll still have something to blog about. If only it were some topic other than disasters boldly blundered into. Some days I wonder how I remain an optimist.