Monday, December 22, 2008

Keep the Crutches Handy

Paul Krugman warns that the era of big bubbles is over.

Whatever the new administration does, we’re in for months, perhaps even a year, of economic hell. After that, things should get better, as President Obama’s stimulus plan — O.K., I’m told that the politically correct term is now “economic recovery plan” — begins to gain traction. Late next year the economy should begin to stabilize, and I’m fairly optimistic about 2010.

But what comes after that? Right now everyone is talking about, say, two years of economic stimulus — which makes sense as a planning horizon. Too much of the economic commentary I’ve been reading seems to assume, however, that that’s really all we’ll need — that once a burst of deficit spending turns the economy around we can quickly go back to business as usual.

In fact, however, things can’t just go back to the way they were before the current crisis. And I hope the Obama people understand that.

I’m reminded of the time when I broke my ankle. I had to wear a cast for twelve weeks. It was painful, annoying, and I was sure that I was healed long before the doctor took the cast off. He as much said so when he finally liberated my leg, but he wasn’t taking any chances, and he had me wear an air-cast for another week or so and told me to keep my crutches handy. That sounds like good advice for our economy, too.