recession

/ / , , , , , , , , , , , /

Obama: A Year End Economic Report Card

This has all the appearance of a slow news week coming up. At least for the economy. On Thursday and Friday we will hear a little more about unemployment, consumer sentiment, and retail sales, but before then we will have nothing to do but watch the slow moving lunacy that is the health care ‘debate’.

And, yes, it justifies those quote marks.

Given this, I thought now would be a good time to reflect on the overall Obama economic agenda and start to hand out his year end grades. So here we go:

  • Growth, or lack thereof:

I begin here because everything else has to be placed in the context of the overall economy. As those of you who follow my comments closely will no doubt recall – how could you forget? I have shouted loudly enough! – I have been a regular critic of the administration’s luke warm efforts with regard to stimulus. I thought from the outset that they set the bar too low and failed to fight for the necessary injection of cash to guarantee an end to the recession.

This failure was based on two parallel lines of reasoning: first there was a shallow sense of political possibility – the administration deemed that in the aftermath of TARP Congress was not in the mood to spend enough to save the economy, and so it chose not to spend its capital on getting the right stimulus package together; and, second, there was a clear rift within the administration’s economic advisory wing between those who sought a larger stimulus and those who believed the forgoing about the political landscape. This internal conflict resulted in any discussion of a properly configured package being eliminated before the start of debate.

We began the discussion with one hand tied behind our backs.

Naturally the outcome was messy. Far too much of the stimulus was allocated to low effectiveness items – tax refunds being the classic example – and too little was allocated to big spending, and therefore big employment, capital projects. There was to be no second New Deal.

The political calculation was both cynical and misdirected. Opponents of government spending were not mollified or muzzled, and advocates were left doubting the administration’s political will. Both camps ended up with something to grouse about. The opponents were given ample leeway to complain about the failure of government intervention, while advocates – like yours truly – have been left to fret constantly about a missed opportunity. Either way the administration looks a little lame. But that seems to be a theme lately.

As we now know, with the Congressional Budget Office report last week, what stimulus there was had the predicted and desired effect. It put a considerable floor under the economy. Fewer jobs were lost, and growth has returned earlier than would have been possibly without such a stimulus.

The enduring problem is that the weakness of the original package echoes on through the economy’s current struggles. Because the stimulus fell way short of the amount needed to guarantee a return of solid self sustained growth within the private sector, we are faced with an ongoing worry that growth is so weak it could evaporate at the first sign of reversal. Plus, as we all know, unemployment has risen to a sadly high level, notwithstanding its slight decline last month. So while the CBO points to success, that success is sufficiently muted that many regular folks just don’t see it.

As a result, opponents of stimulus still rant about its failure and their complaints resonate well with a populace regularly spoon fed a diet of anti-government ideology over the past thirty years. The opposition has tapped into a populism deeply entrenched and steeped in suspicion of all things to do with government spending. So when the Federal budget is announced to be growing by leaps and bounds, opponents of stimulus find easy access to the media and have an equally easy time convincing voters that now is the time to reverse course and ‘balance the books’.

That these same folks were silent during the great debt surges under Reagan and Bush never seems to register with voters. As I have written here before nothing is more confounding of the stereotypical view of our political parties than the fact that, in its history, the US has had exactly two non-crisis surges in its national debt. Both were associated with Republicans – Reagan in the 1980’s, and Bush in the 2000’s – and yet neither gets the opprobrium it deserves. Let me repeat: national debt should go up in times of necessity. That’s what it’s for: to provide cash when the country faces a crisis. It should never go up when the economy is healthy.

Nonetheless, here we are, the stereotypes are being trotted out, the fiscal hawks are gaining strength, and the economy is still weak.

So what grade should we give? The economy is growing, for that we should allocate a B++. Growth could have been more robust so an A is not in order, but the odds are that we will grow modestly for a while. Unemployment is very high, that garners a C+. We could have attacked it with more energy and commitment, but much of the damage came on Bush’s watch. Most importantly, the political landscape is now strongly set against further intervention, even though the original stimulus was a success. This deserves a C. I can’t help but feel the political sands shifting against us – call it a lack of will, or call it a fine calculation, either way we have deliberately reduced our policy options at a critical moment in our economic development.

Overall grade? B or B- [with a plus trend] depending on how annoyed you are about the poor politics.

  • Financial Reform:

It would be easy to say ‘what financial reform’? given the slow dance going on in Congress, but this is a very important part of our economic agenda so we have to eschew giving an incomplete and grade what we know so far. Next year we will hand out the final grades.

I begin by repeating my comment about tepid leadership. Nothing speaks more to the administration’s style than its almost aloof handling of the financial crisis. Again we must be careful: this disaster festered and sprang to life under the auspices of the Bush regime so Obama is left to carry the bag. But that should be an opportunity to write history, not to wallow in bureaucracy. I am afraid the administration’s efforts so far are so way off target that they should not be dignified with the word ‘reform’. The current proposals have all the reformist thrust of a limp carrot. A wilted one to boot. It looks fine but has absolutely no crunch. The administration’s efforts have all the hallmarks of a bureaucrat’s small minded wish list: petty rule tweaks, minor adjustments, and lots of discussion about exactly where to staple the papers together. None about attacking the root causes of our problems. Which is a subject that might upset the bankers, so it gets shunted off to one side.

I see it as boiling down to this:

  1. Break up the big banks. They are too big for us to afford as a nation. Until they are cut down to size policy makers will live – understandably – in their thrall. This should have a nice patriotic and populist ring to it, bit instead is treated as a hair brained scheme thrown in from the fringe. Except that both Volcker and Greenspan have now endorsed it. That the administration doesn’t speaks volumes of its willpower.
  2. Cut the Federal Reserve Board down in size and scope. It failed. It failed as a systemic regulator. It failed as a monetary policy institution. And it failed as a protector of consumers. Of these three it should be allowed to keep the monetary policy portfolio alone. The others need to go elsewhere. Plus, and this is another populist measure that should be bringing Obama plaudits from Main Street, we need to open the Fed up. Currently the Fed is still an opaque gentlemanly bankers club. It is riven through with conflicts of interest and is overwhelmingly banker sympathetic. It needs to become a more balanced economic institution akin to central banks elsewhere. At the same time let’s reject the plainly silly notion that we can manage the economy without a Fed. Only extreme libertarians and neo-classical economists could think such a thing. And recent history has just dealt their worldview and nasty blow.
  3. Establish a true consumer finance regulator. This should be a no-brainer. And kudos to the administration for backing the idea. The Fed has been horrible as a protector of consumer interests. It fell hook line and sinker for the ‘let the markets decide’ version of regulation. It had a positively Ayn Randian perspective on the benefits of deregulation, so it should come as no surprise that consumer protection fell off its radar entirely. This needs to be fixed.
  4. Either abolish or regulate the derivatives markets. Properly speaking there are no centralized ‘markets’, which meant that the world of derivatives possessed all the sanity of the Wild West. No wonder it blew up. I fail to see the underlying economic or social purpose behind most of what goes on in the murky world of the derivatives business: it simply aggrandizes the players while we pick up the tab. Agricultural and commodity futures and their ilk I see a place for, but CDO’s and CDO ‘squared’ … not so much. If the game is to be continued put it out into the open. No more ‘dark pools’ and other testosterone polluted quagmires.
  5. Combine. Combine. Combine. Let’s have one financial regulator. No more regulatory arbitrage. Let’s have one national insurance overseer. And let’s get all the financial market regulation under one roof – preferably not the SEC’s given their record of pandering to business, but it will probably have to be there. Plus, and this won’t happen, let’s update Congress itself: one oversight committee and not the current mess.
  6. Lastly, ban corporate political contributions. Ban them. I know it won’t happen. But until it does our politics will remain corrupted by the flow of cash.

Well that’s my list. How does the administration stack up? C-, that’s how. They only score that well because the reform effort is still underway and Congress is adding in its own proposals to help stiffen the administration’s spine.

My problem with the administration and its attitude towards banking is predicated on what I perceive to be its over weighting towards the industry. Too many of its key players are closely aligned and sympathetic with industry positions. Geithner, Summers, and Bernanke are all schooled and experienced in the same way as the big industry insiders. They believe the same things. They differ only in degrees. Which is why the administration’s reform is redolent with tweaks and not bold action. They have bought the notion that a few nice nudges are all that is necessary to prevent another meltdown.

I couldn’t disagree more. That C- is under pressure already!

  • Health Care Reform:

I have never been more disappointed with Congress, the administration, and the entire structure of political discourse than I am over this issue. It has been a low point in American political life. This is an issue of supreme economic and social importance and the country has been treated to a spectacle worthy of a lower grade school bun fight. Pathetic dignifies it.

I give the administration enormous credit for getting the notion of health care reform on the agenda. That alone deserves an A+. It’s subsequent abject inability to shape the discussion is just appalling. It gets an F for that.

The entire process has been a long drawn out appeasement of a few senators. It has exposed the arcanity of the Senate process, which is designed to enforce compromise even on subjects as divisive as health care reform. Hence we watch people like Olympia Snowe being courted as if she is a world expert on health care, and have to listen to Joe Leiberman – painful at the best of times – twist and turn as he attempts to sink the public option.

As you know I love argument and debate. But this has been neither. It has been mudslinging and avoidance of fact. The name calling and hysteria over things like rationing has been demeaning to a nation that thinks of itself as a world leader. No one, seemingly, wants the public to hear what the central issues are. No one wants to inform.

This is the administration’s fault.

It has the soap box.

Nothing is more telling about the administration’s weakness as a source of leadership than this pseudo debate. Having put the ball in play the administration spent the entire summer avoiding getting entangled or even staking out a clear position on the choices. Even yesterday as he attempted to rally the Democratic caucus, Obama couldn’t bring himself to refer to the public option.

Let me not dither that way: we need reform. Said reform should expand coverage as much as possible. In the absence of a true single payer system – which is the least cost option – the system should highly regulate the insurance companies. We should all recognize that the health care coverage we get from employers is not ‘insurance’ it is a benefit. We need true insurance. But the economic nature of privately supplied insurance militates against widespread provision – private ‘for profit’ companies naturally want to cherry pick who they cover and what they pay for. Private companies ration health care via the prices they charge. Rightly so. The question before us is thus simple: do we agree that we should have limited, higher cost, and private insurance? or do we want more widely available, cheaper, but government provided insurance? They are the two central choices. Both are forms of rationing. All economic choices are a form of rationing. If we want cheap, we need the government’s size and indifference to profit to drive prices down. It is a scale argument. Plus: only the government will be willing to insure everyone. Even sick people.

And that’s what I thought a health system was for.

I don’t blame you if you have turned off from the ugliness that has passed for ‘debate’ this year.

I do blame the administration for not having provided a more muscular leadership to keep us focused on the big issues. Instead we were left to muddle through.

And what a muddle it is. Even now, right at the end of the process, it is hard to tell what will emerge.

So somewhere between an A+ and an F? Pending the outcome I give the administration a C+/Incomplete

There you have it. The year end report:

Economy: B

Financial Reform: C-

Health Care Reform: C+/Incomplete

And a lot of ‘must try harder’!

/ / , , , , /

Jobs: Christmas Comes Early?

I held off commenting on yesterday’s weekly unemployment report, even though it was a generally positive one, because today we were to find out about the monthly unemployment rate.

Wise choice: the news was better than expected and, if continued, surely, marks a turning point.

The national unemployment rate fell from last month’s high point of 10.2% to 10.0%. Not much of a drop certainly, but it stops the steady rise we have been suffering. The rate of job losses also fell to a mere 11,000 in November the best performance for two years. Unfortunately that slight loss means we have now witnessed twenty-three straight months of job loss, during which time we have lost a cumulative 7.16 million jobs. It is this context that today represents such an important moment – perhaps the holidays have come early.

Yesterday we learned that new claims for unemployment insurance fell below the 500,000 mark for the first time for a long while as well.

Taking the data as a whole the picture is more encouraging than most people, including myself had imagined it would be. But before we get too carried away we should take pause: the number of long term unemployment is still rising and very high at 5.9 million or 38.3% of the total jobless. Taking the unemployed figure and combining with the ‘grey unemployment’ represented by discouraged workers we end up with a figure of 17.2% for a more comprehensive view of what the jobless situation is.

So we must take the balanced view and keep our enthusiasm for the drop in the overall unemployment rate in perspective.

Let me make two points:

  1. One month is not a trend. The decline in unemployment in November has to be backed up over the next few months as well. The key question we need to ask, and answer, is how quickly will the job market generate enough jobs to absorb that huge increase in long term unemployed workers, and to re-absorb all those five plus million people who have lost their jobs in this horrible down cycle. All the signs indicate a long slow, and difficult, improvement. I think we can congratulate ourselves if we see the unemployment rate much below 8.0% this time next year.
  2. The drag on consumption, consumer sentiment, and thus the economy that unemployment represents will thus continue well into 2010, and possibly well into 2011 as well. The cost in human terms – diminished skills as well as lost incomes – is piling up and effectively reducing our future potential. The sooner that we create sufficient jobs the better. I continue to think that policy initiatives, let’s not call them stimulus for fear of spooking the opposition, should be a priority.

With that in mind Obama has called a large group of ‘leaders’ together to discuss potential actions we can take to get the economy generating jobs. Not a moment too soon. I am always skeptical of such gatherings – I see them as attempts to create the illusion of action and thus as attempts to distract from prior inaction. At no time since this crisis began has the unemployment problem been a minor one. It should have been up front and center throughout. That we are only now getting around to a discussion about what to do seems a little tardy to me.

Better late than sorry.

Meanwhile let’s all take some holiday cheer from today’s news and the very first signs of an improvement in the job market.

/ / , , , , , /

Manufacturing Signals a Slowdown?

The data this week so far has been sparse, and in the context of our fragile economy it can be worrisome not to see a constant flow of statistics confirming our growth path. People like me tend to get concerned about downside risks and so fret in the absence of rosy information.

Take today’s Manufacturing ISM report.

This is a measure of activity in our factories and has been in a growth pattern for a few months. But it stalled in November. It dropped from October’s 55.7% to 53.6%. Not a huge drop I admit, but a worrying one. Ant reading on this index over the 50% mark indicates that the economy is growing, so November’s figure still supports the view we are out of recession. The problem is that the pace of recovery seems to be slipping already.Worse yet is the labor component of the overall index: it slipped to just 50.8% which is barely expansionary.

Clearly we are not out of the woods yet.

I realize this is repetitious, but the issue is that most of the recovery has been fueled by the combination of inventory correction and the government stimulus. It was the inventory re-stocking that spurred the original uptick in manufacturing. What today’s news suggests is that the adjustment has been completed and that any further growth in factory activity will have to come from an increase in demand.

And there is little or no evidence of such an increase.

So, with the impact of the stimulus also beginning to fade – in growth terms it has already had its biggest impact – we are all now waiting for the basic economy to show signs of life. Those signs are there, but are weak. Today’s news makes me wonder whether they will get weaker still. Given how close we remain to the edge, any further weakening could be sufficient to push us back into recession.

Few people are forecasting a ‘double dip’ recession, but the odds are increasing not diminishing.

And that has me worried.

/ / , , , , , , , /

Are We That Dumb?

Apparently.

The growing consensus in the media and commentariat is that a recovery has begun, that the economy is therefore OK, and so we need to shift our attention to setting the stage for tightening both fiscal and monetary policy. And this tightening had better come soon since there is a tsunami of problems ready to destroy the civilized world if we don’t act now. Or even sooner.

The problem I have with this train of thought is that nothing in the data suggests it’s true.

Nothing.

I have just read Paul Krugman’s blog where he notes the same thing. His conclusion is that we have entered one of those all too familiar periods of US history where the facts and the consensus opinion our not in step. What makes things worse is that, inevitably, it is the facts that lose in such a confrontation. The last time we were like this was during the run up to the Iraq war when no amount of fact checking could persuade the media that an invasion was the wrong course of action.

I just hope this current disconnect does less damage, and that we do not have to be subjected to a string of mea culpas over the next few years as the economy flounders deep in depression.

Because that’s where we will be if this herd mentality infects policy too much.

I fear it may be too late anyway.

The simple fact is that our economy is very weak. The recovery is more technical than real. Jobs are horrendously scarce and the employment outlook is still grim. Don’t just listen to me: the general consensus of economic forecasters is that we will still have an unemployment rate in excess of 8% deep into 2012. Think about that. Nearly three years from now our unemployment rate will be higher than it was when Bill Clinton used a poor economic record to wrest the White House from Bush Senior.

This nugget of information is not exactly top secret, so I would have thought that the current administration would be pulling out all the stops to get unemployment down as rapidly as it can. Winning elections usually focuses political attention on inconvenient things like a lack of jobs.

But no. The Obama folks have fallen under the same spell as the media. All the talk now is of tough action to be taken soon to tighten the Federal budget. Just in case those nasty bond people decide to pull the rug out from underneath us.

Here’s another interesting nugget: PIMCO our largest domestic bond fund, and one of our most successful, just bought up a huge pile of US bonds. That does not sound like an imminent panic. On the contrary it sounds like a vote of confidence.

The only way I can explain the disconnect between the facts and the curious fiction found in the media is that we live in an era of attention deficit disordered reporting. No matter what the crisis is, no matter how deep, nor how difficult it might be to cure, it must not last long. We need new angles and new stories to keep the front page fresh. So, after due time, we must shift our attention to the aftermath of the crisis rather than on its continued existence. After all the fact that we have a crisis is soooo yesterday.

We have reached the Age of Immaturity.

To some degree this explosion of stupidity is being fed by the counter-revolutionaries of the free market brigade. They have manned the intellectual barricades in order to salvage what reputation they can from the chaos their ideas have wrought. This resistance to honest re-appraisal of theory and its concomitant embrace of delusion pervades the entire fabric of all institutions who were fully invested in the free market deregulatory era. Don’t forget that our society became obsessed with stock market watching over the last few years. We gorged on spurious economic and financial data and were spoon fed market based ideology by endless cable TV talking heads all who seem to have grown up in the post Reagan era. Not one seems to have heard of Keynes. And few seem bothered by the prospects of depression. Since nothing lasts long in this fast paced world, the assumption is that the recession cannot last long either. Every news station and cable TV channel pours out daily minutia about the economy and therefore the competition to be on the leading edge of the next story trumps [sorry about the pun] any need to dwell on the current story.

This is why risk management failed us so miserably over the last few years: it got in the way of a good, positive, message.

The funny thing is that, as I reflect on my years in banking, the same problem existed back then. The difference between the two eras is that nowadays the stupidity is magnified by the vast array of news outlets. Back then the damage was confined to the banks whose managers fell prey to the good time stories. And there were plenty of them even then.

So here we are rushing full tilt into a group think disaster. The economy is great. The stock market is flying again – that’s all that really matters – and the only hiccup between here and nirvana is the potential threat from the bond market and the falling dollar.

Therefore all serious people will surely act early and firmly to demonstrate our commitment to defending the dollar and balancing the budget. [Does anyone care that the dollar dropped like a stone during the Bush years and that none of these same commentators mentioned it?]

Damn the consequences.

Apparently it far better to sink on a neatly run ship than to float on a messy one. It shows our commitment.

How else do I explain tepid financial reform? Weak stimulus? Dithering on jobs programs? Ridiculous commentary about bond rates?or hysteria about debt levels?

Are we that dumb?

Yes we are.

/ / , , , , , , , /

More Debt Hysteria

I have often wondered how easy it would be to write a completely silly article and still get it published. Now I know. Emund Andrews did it this morning. You can read his foolery on the front page of the New York Times.

Yet more debt hysteria I am afraid.

This is getting a little monotonous, but as in any epidemic, we must not let our guard down. We must confront this hysteria front on wherever we come across it. I just didn’t expect to find it on the NYT front page.

What really annoys me most is the amazing lack of analytical thought going into these articles. They simply seem to be a re-hashing of the same tired, and by now thoroughly debunked story. This is, of course, familiar territory: there is a school of thought out there supporting the notion that repetition can convert a falsehood into a truth. So we are bombarded with ever increasing frequency about the impending perils of America’s debt crisis.

It would nice were there some facts to document this crisis. Apparently I am asking too much.

But a crisis is assuredly is because Mr. Andrews breezily asserts so. Or more to the point he simply wonders aloud about the consequences of said crisis, presumably taking its existence as a given.

So allow me to be boring. Let me talk facts. I realize it’s less inflammatory and makes for a dull headline, but, given the enormous consequences of incorrect policy actions, I think we need to be quite sober when we discuss our national debt.

So without the hyperbole here goes.

Taking a look at the way in which our budget has fallen afoul of the recession we need to pick apart the causes of the rising Federal deficit. That is to say we need to know why we are in debt. To do this we should compare budgets, one put together before the crisis, and one that includes all the actions and expenses of the crisis. Given that we are supposed to be facing a tsunami of debt we need to look out a few years so we can identify when we get swamped. So lets look at our forecast budget out ten years. The ‘before crisis’ budget was about $8.3 trillion better off than the ‘after crisis’ budget. So the hysteria is over that addition of $8.3 trillion to the debt. As a proportion of GDP this addition drives the US debt ratio from about 40% up to around 70% over the ten years – a significant jump. Significant enough to cause all this panic.

Now let’s look at the books:

  1. First we see that projected discretionary spending does indeed increase. Somewhere in the region of $1.3 trillion over that period. This is the category that covers stuff like bail outs and stimulus packages. So this is where Obama’s fiscal folly would be accounted for.
  2. Second we see that debt servicing – the cost of paying interest on all that debt – also goes up. In this case by about $1.5 trillion also. Now let’s be clear here: much of this cost is baked into the numbers because the debt already exists. The Treasury has been active in extending maturities lately to take advantage of low interest rates. But there is also a huge amount of short term debt that needs constant refinancing and so could be re-priced at higher rates. Given that short term rate are practically zero currently any move would be up. But the budget allows for that. So let’s go with the budget figure.
  3. Next comes mandatory spending on things the law says the government has to do. That goes up about $0.8 trillion.
  4. So, thus far we have accounted for a big chunk of the deterioration between the ‘before’ and ‘after’ crisis deficits: $1.3 + $1.5 + $0.8 = $3.6. Hmmmm. The total dent in our finances is $8.3. We have not accounted for over half the problem, and yet we have accounted for all the changes in spending. I wonder what could create that other chunk? We need to find another $4.7 trillion.
  5. Well its the recession stupid. By far the biggest reason our budget appears in the hole right now is because there’s a recession going on. Whoops we forgot about that. Revenues have imploded. Tax intake has dropped like a stone. That’s the big issue here. Revenue decline accounts for over 50% of the debt bulge everyone is getting panicked about. Sorry everyone but we don’t have a spending issue we have an income issue. And a temporary one at that.
  6. Even more: the after crisis budget has a much reduced number for GDP in 2018. That means any ratio of that figure is going to be higher than it would have been had GDP not been reduced. This phenomenon is called arithmetic. So naturally the debt looks a lot worse – that 70% number – when the debt is expressed as a ration of a recession hit and therefore shrunken GDP.

This is why I get annoyed. The tsunami becomes a normal wave when you look at it clearly.

Obama’s reckless budgets are not our problem. The recession is. I thought we knew that by now.

Apparently not.

Once the economy starts to grow much of the deficit melts away of its own accord because Federal revenues will recover. This is not including any tax increases, or even the elimination of the infamous Bush tax cuts that created a far larger deficit issue than all the bail outs and stimulus added together.

This is what we call a ‘cyclical’ debt problem. Bush created a ‘structural’ debt problem by cutting revenues and getting no increases in GDP or cuts in expenditure to offset that loss. The Bush deficits are the permanent bit of our problem.

In contrast the bail outs and stimulus spending is temporary. Yes they added to our debt. But the deficit won’t stay that way. It will shrink as soon as we get going. Leaving us the Bush debacle to fix. If we have a debt problem it’s that one, not the one caused by recession.

I hate having to belabor all this, but it is vital we separate the issues so we can deal with them sensibly.

The US has long term fiscal problems. It has Social Security and Health care costs that need controlling. More importantly, ever since Reagan began to use the Social Security surplus to offset the regular budget deficit we have managed to avoid looking at the true gap in our everyday spending. Reagan was the first president to use a combined budget. Up until then we saw two budgets: one for the everyday stuff, and one for Social Security. So for thirty years we have been bamboozled into thinking our budget was in better shape than it is. That way we could avoid having to cut or control costs. This was vital to Reagan because he wanted to inflate defense costs and hide the impact – basically he used debt and Social Security income to fund defense. The key he wanted to get around was having to raise taxes to pay for that defense build up. His great twin legacies were the loss of truthful accounting and the illusion that borrowing could go on interminably.

The irony now is that it is his ideological successors who are raising the panic about deficits and debt – these are the very folks who looked away during the Reagan and Bush debt frenzies.

So there you have it.

Yes our debt ratio will get worse. We’ve just been hit by a horrendous recession. Duh. And, yes we can pay for it – it is all very manageable – as long as we get our economy humming again. It will take a few years for the debt levels to fall back to more ‘normal’ levels, but frankly we haven’t had ‘normal’ levels for three decades anyway, and we might not get back there for three more decades.

The key is to remember why the debt ballooned, and to keep our focus on the really big job at hand. That is to get the economy growing sustainably. That means jobs. It might even require more debt. The number one task right now is still recession fighting. We can begin the switch to fiscal rectitude afterwards.

Let them eat cake is not a particularly palatable economic policy, but it is the logical outcome of this bout of debt hysteria. If we get our priorities backwards and look to balance budgets and reduce debt loads before the economy is safely back on track then we run the risk of repeating the 1930’s. Allowing the bond market – or rather the supposed bond market since the actual one doesn’t seem too worried at the moment – to take priority over things like jobs programs is dooming us to a decade of horrendous human cost. That road is known to us. It is an ugly one.

Which is why we need to defang this hysteria before it sweeps us in the wrong direction.

«< 14 15 16 17 18 >»