September 07, 2010

Deja vu again

It seems to me that President Obama isn't as lucky as FDR was in dealing with the last massive economic meltdown. The Crash of 1929 happened three years before Roosevelt was elected president. This gave Hoover plenty of time to own it and FDR quite a bit of leeway in dealing with it.

The Great Recession, on the other hand, started in late 2007 but it didn't really hit hard until 2008 and 2009. While it was brought on by the excesses of nearly 30 years of deregulation and supply side policies, that chain of cause and effect isn't visible to many Americans.

Paul Krugman sums things up pretty well in today's NY Times:

Here’s the situation: The U.S. economy has been crippled by a financial crisis. The president’s policies have limited the damage, but they were too cautious, and unemployment remains disastrously high. More action is clearly needed. Yet the public has soured on government activism, and seems poised to deal Democrats a severe defeat in the midterm elections.

Roosevelt hit a similar rough patch in 1937 and 1938. In the end, the Depression was ended through deficit spending associated with World War II. It will probably take additional deficit spending to spur job growth, at least until the economy is firing on all cylinders. Krugman again:

The economic moral is clear: when the economy is deeply depressed, the usual rules don’t apply. Austerity is self-defeating: when everyone tries to pay down debt at the same time, the result is depression and deflation, and debt problems grow even worse. And conversely, it is possible — indeed, necessary — for the nation as a whole to spend its way out of debt: a temporary surge of deficit spending, on a sufficient scale, can cure problems brought on by past excesses.

The problem, of course, is that the current political situation makes that hard to do, and it will probably get harder in the future. This could lead to prolonged economic misery as well as social and political nastiness.

As Oliver Goldsmith put it in the 1700s, "Ill fares the land, to hast'ning ill a prey, Where wealth accumulates, and men decay..."

ONE GOOD COLUMN DESERVES ANOTHER. Here's E.J. Dionne on what the labor movement has meant to the building of the middle class.

WHY NOT ONE MORE? Here's Harold Meyerson while we're at it on the state of labor (short version: it isn't good).

STUDY THIS. New research on how people learn questions some old beliefs.


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