No Return to Normal: Why the economic crisis, and its solution, are bigger than you think

[marmar]

from Washington Monthly:



No Return to Normal
Why the economic crisis, and its solution,
are bigger than you think.

By James K. Galbraith


--------------------------------------------------------------------------------



Barack Obama’s presidency began in hope and goodwill, but its test will be its success or failure on the economics. Did the president and his team correctly diagnose the problem? Did they act with sufficient imagination and force? And did they prevail against the political obstacles—and not only that, but also against the procedures and the habits of thought to which official Washington is addicted?

The president has an economic program. But there is, so far, no clear statement of the thinking behind that program, and there may not be one, until the first report of the new Council of Economic Advisers appears next year. We therefore resort to what we know about the economists: the chair of the National Economic Council, Lawrence Summers; the CEA chair, Christina Romer; the budget director, Peter Orszag; and their titular head, Treasury Secretary Timothy Geithner. This is plainly a capable, close-knit group, acting with energy and commitment. Deficiencies of their program cannot, therefore, be blamed on incompetence. Rather, if deficiencies exist, they probably result from their shared background and creed—in short, from the limitations of their ideas.

The deepest belief of the modern economist is that the economy is a self-stabilizing system. This means that, even if nothing is done, normal rates of employment and production will someday return. Practically all modern economists believe this, often without thinking much about it. (Federal Reserve Chairman Ben Bernanke said it reflexively in a major speech in London in January: "The global economy will recover." He did not say how he knew.) The difference between conservatives and liberals is over whether policy can usefully speed things up. Conservatives say no, liberals say yes, and on this point Obama’s economists lean left. Hence the priority they gave, in their first days, to the stimulus package.

But did they get the scale right? Was the plan big enough? Policies are based on models; in a slump, plans for spending depend on a forecast of how deep and long the slump would otherwise be. The program will only be correctly sized if the forecast is accurate. And the forecast depends on the underlying belief. If recovery is not built into the genes of the system, then the forecast will be too optimistic, and the stimulus based on it will be too small.

Consider the baseline economic forecast of the Congressional Budget Office, the nonpartisan agency lawmakers rely on to evaluate the economy and their budget plans. In its early-January forecast, the CBO measured and projected the difference between actual economic performance and "normal" economic performance—the so-called GDP gap. The forecast has two astonishing features. First, the CBO did not expect the present recession to be any worse than that of 1981–82, our deepest postwar recession. Second, the CBO expected a turnaround beginning late this year, with the economy returning to normal around 2015, even if Congress had taken no action at all. ........(more)

The complete piece is at: http://www.washingtonmonthly.com/features/2009/0903.galbraith.html

[Mari333]

1. the bush admin got exactly what they wanted

they were in office for 8 yrs ( stolen) to accumulate as much as they could to fill the coffers of their friends and themselves..they succeeded beyond their wildest dreams..defense contractors and mercenaries are still being paid for illegal occupations, the Pentagon and all its cronies are swimming in dough, the corporations are flush with cash from outsourcing, and the chosen few are happy..and in the wake of it all we are left. We arent even seeing them get investigated or prosecuted. They just rushed in like bandits and stole the country.
There needs to be radical change, not moderate change, if this country ever hopes to get back on its feet.

[ThomWV]

2. If you read no other article today this should be the one.

[leftchick]

3. It Seems asthough James G has become pretty gloomy

I just posted this and there he expresses optimism that since they have been exposed the correction process will occur. It ain't happening....


http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389x5294229

Thank you for the article, painful as it is.

[eilen]

4. We are in the process of an economic transformation

Nothing is really coming back as it was. It is clear that model was unsustainable. It is my impression that the infusions or bailouts were infused to support the economy/banks/institutions through a transition. I am angry about it and often wish we should let them crash but I think that the changes that are to be made will be painful and doubly painful if forced to change "cold turkey" so to speak.

Meanwhile, laws are able to be made, new budget priorities, energy, financial regulations to pass, a groundwork laid for healthcare changes, etc. We voted for change but most are not able to adjust well to rapid acute change.

Also more and more nefarious and criminal activity is coming to light.

I think we can let the pot smokers out of the prisons and replace them with the white collar financial thieving scoundrels and political hacks who took payouts and kickbacks.

[KharmaTrain]

5. The Phantom Economy...

I agree with most of what he says here, but I'm also of the belief that no one really has a handle on the depth of this mess. It's 30 years of weaving and "deregulation" that not only infested the economic system, but became its lifeblood. Gaming the system became the game...making money out of nowhere. Companies detached stock prices from their earnings and manipulated prices through press releases and other gimicks (digging further in debt) and the SEC sat on its ass for most of the time allowing insider trading to run rampant. Things got too cozy and as long as people were making money, no one dared to face what was really happening. This country had developed a phantom economy.

The fact credit remains so tight says our banking system is insolvent...it needs to be nationalized and restructured. If a company is too big to fail, it's too big. Anti-trust laws were created not out of spite, but due to past economic disasters...Raygunomics played Russian Roulette with the economy and 8 years of boooshie pillaging of the treasury have created a deep hole that is still bottomless. Right now all I see is an attempt to set a "floor"...stop the bleeding. It's a real shit sandwich since acting too radically can force deep, fast pain rather than the slow torture many of us are going through. The bottom line is what type of landing we have before things do turn around. Geitner's trying to make that landing soft...too soft...and this is what is causing people to call for his head...he's too cautious where we know when you try to play in the middle, you get run over.