Tuesday, January 27, 2009
In this morning's commentary at Bloomberg, Caroline Baum wonders how the cure and the disease can be one and the same for what ails the nation's economy.
Someone returning to Earth from a yearlong sojourn in outer space could be excused for feeling disoriented.After recounting just what brings us to the current point - technology boom, technology bust, housing boom, housing bust - and pondering the current freakishly low interest rates and freakishly large balance sheet of the Federal Reserve, attention is focused on the economists who are now in charge.
After all, when said space traveler departed our fair planet, the U.S. economy was buckling under the weight of the burst housing bubble. The blame game was in full swing, with the villains ranging from Alan Greenspan and his easy money policies to consumers borrowing and spending beyond their means to financial institutions enabling profligate spending to a misallocation of capital to housing.
Fast forward one year, the crisis is still going strong, the villains are still under attack, yet something curious has happened: The policies and actions responsible for the economy’s illness are now being prescribed as cures.
President Barack Obama’s crack economics team, including Larry Summers and Christina Romer, and Fed officials from Ben Bernanke on down have to understand that the problem of too much leverage can’t be fixed with more borrowing; that a misallocation of capital to housing can’t be cured with incentives to buy more homes; that consumers (and the nation) can’t spend their way to prosperity.Hope is a good thing. It's not always effective, but it's a good thing.
At least I hope they do.