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17 January 2008

New kind of recession, new rules

As the government here is in minor turmoil over the "Northern Rock crisis" and the company I used to work for (on whose premises I still work as a contractor) just made 500 people around the country redundant, I just happened upon a really brilliant op-ed piece by Harold Meyerson in the Washington Post (or WaPo as most typing-shy bloggers call it). Now this article is over a year old, even though it is more relevant now than when it was written (which we word-infatuated bloggers call "prescient") so you may need to register with WaPo to read it, but you can opt out of getting any of their friendly and well-meaning spam and it is free. But knowing my readership as I do, I decided to revert to my old habit (avoided lately for IP reasons) of long quotes, because I sense that you won't register, and this is just so good:

In a normal recession, the to-do list is clear. Copies of Keynes are dusted off, the Fed lowers interest rates, the president and Congress cut taxes and hike spending. In time, purchasing, production and loans perk up, and Keynes is placed back on the shelf. No larger alterations to the economy are made, because our economy, but for the occasional bump in the road, is fundamentally sound.
This has been the drill in every recession since World War II.
Republicans and Democrats argue over whose taxes should be cut the most and which projects should be funded, but, under public pressure to do something, they usually find some mutually acceptable midpoint and enact a stimulus package. Even in today's hyperpartisan Washington, the odds still favor such a deal.
This time, though, don't expect that to be the end of the story -- because the coming recession will not be normal, and our economy is not fundamentally sound. This time around, the nation will have to craft new versions of some of the reforms that Franklin Roosevelt created to steer the nation out of the Great Depression -- not because anything like a major depression looms but because we face an economy that's been warped by two developments we've not seen since FDR's time.
The first of these is the stagnation of ordinary Americans' incomes, a phenomenon that began back in the 1970s and that American families have offset by having both spouses work and by drawing on the rising value of their homes. With housing values toppling, no more spouses to send into the workplace, and prices of gas, college and health care continuing to rise, consumers are played out. December was the cruelest month that American retailers have seen in many years, and, as Michael Barbaro and Louis Uchitelle reported in Monday's New York Times, delinquency rates on credit cards, auto loans and mortgages have all been rising steeply for the past year.

So, I hope that was good enough to entice you to read the entire article. He goes on to offer real, serious and radical ideas about "what is to be done".

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