Imagine if Herbert Hoover had won re-election in 1932, along with commanding majorities of conservative Republicans and Democrats in Congress. Or if Franklin Roosevelt had followed his true inclinations to balance the budget instead of being a shrewd experimenter? That’s about where we are now.
The tragedy of the Federal Reserve’s quantitative easing is that it can’t overcome the new orthodoxy of “austerity” in Washington (but, of course, not in defense and “homeland security” spending). The private sector is broken as a jobs machine for now. And the only way out is deficit spending on infrastructure and cutting-edge industries, which would repay themselves. This, by the way, is not the path President Obama took with his stimulus, which was largely wasted in small tax cuts and backfilling state government crises. It’s not going to happen, so the Fed is left as the stimulator of last resort.
But merely flooding the system with dollars translates into hot money bouncing around the world’s capital markets (that’s what’s driving the stock rally today). And the Fed already wasted precious resources bailing out the big banks, which in the Depression had to eat their bad bets and swindles.
The Great Recession and its aftermath are not a normal turn of the business cycle. They’re nothing like we’ve seen since the panics of the late 19th century, now foisted onto a complex modern society. And policy-makers bewitched by an ideology with no success in the real world are taking us to a place we’ve never been before.
It’s going to be ugly.
Today’s Econ Haiku:
An open book? No.
But does Jeff think Amazon