Ezra Klein on the financial fall yesterday.
A dramatic gap has opened between the economy as Washington sees it — and wants to intervene in it — and the economy that exists. Whatever weak recovery we might have hoped for is being hindered by global commodity prices, consumer deleveraging, fears of flagging demand in emerging markets, earthquakes in Asia and much more. Globally, it’s been an almost uninterrupted run of crises and bad luck. Meanwhile, Washington just spent two months arguing over whether it would pay its bills or spark an unnecessary financial crisis.
Congress resolved that question this week, and the markets are tanking. Which suggests that Washington is asking itself the wrong question.
The right question is simple enough: Where will the recovery come from? The problem is that no one has an answer. And as one hopeful hypothesis after another is dashed, the markets are beginning to panic.
It would be really easy to blame all the uncertainty on the political tantrums that we saw from Washington last week; after all, the markets in other countries were really freaked out by watching the biggest economy in the world behave like squabbling children in the back seat of a station on a long road trip.
I’m no economist, but the best example I can see of trying to get out of a similar hole is FDR’s first one hundred days of doing massive spending to get people to work. He proved there was a way to spend your way out of the recession; rebuilding the infrastructure, putting people to work, showing an attempt to get things going will prove to the corporations and lenders that there is money to be made in spending it.
The big problem isn’t that we haven’t got the solution. The problem is that too many people have too much invested in the political outcome than they are in the financial outcome. Too much time is going to be wasted figuring out who to blame instead actually doing something. And when Congress comes back in September, they’re going to prove that point all over again.
Happy days are here again.