I haven't written this thing much lately, mostly because I've lost the thread. I do notice what's going on, or at least what I think is going on. The country has become so absurdly ideological that discerning facts (or the signal through all the noise) has become almost impossible.
For example, one great debate raging among economists is whether the Keynesian approach, typified by Paul Krugman, or the Austrian approach, epitomized in the writing of Friedrich Hayek, is correct as it applies to a monetarist approach to the Great Recession. Krugman wants to go all in, and his ideas, for a while, carried the day: the government must stimulate the economy back to a sensate state, by heavy deficit spending. Hayek and his ilk, on the other hand, believe this is folly. All that we are setting up is a hyperinflationary binge by increasing the Federal Reserve Bank's balance sheet from $800 billion (held mostly as Treasury securities) to its present $2.3 trillion, with most of that increase coming in the form of mortgage-backed bonds the Fed has found lying in the street or in overflowing dumpsters around the nation. In truth, Bernanke's experiment is unprecedented. Should the central bank actually own the American mortgage business, lock, stock & barrel?
Krugman may have found it easy to recommend a huge stimulus bill, on top of what was almost certainly a completely unnecessary $700 TARP bill to bail out close personal friends of Hank Paulson, because this venerable Nobel Prize recipient does not actually understand the problem with the national debt. Or if he does, he's amazingly cavalier. The problem that I see is that so much of ARRA (linked to the right) went to propping up state budgets and state payrolls. As I've said, the humanitarian instincts were good, but the Hayek people might have the last laugh. Because after that money is spent, and all those teachers, firemen and cops are kept on the payroll for one more year, what then? Not very much of the money actually represented a capital investment in activities that might "create" new jobs. The money will run out, if not this year then next, and the truth is that the stimulus bill simply anticipates that the Great Recession is simply cyclical, like all others. It will go away because recessions always do.
I'm not sure of that at all. The current stabilization and moderate stock market performance are probably the result of a "melt-up." The American economy has been flooded with fiat paper from the central bank and it has to go somewhere, although the actual stock activity on the exchanges is anemically small. Treasuries pay next to nothing, unless you want to hold them for a dangerously long period (that is, long enough for their paltry returns to be swamped by the coming inflation). Banks and money markets effectively pay zero interest; some of them simply are safer than mattresses (Simmons Beauty-Rest and Sealy Posturepedic pay almost as much in interest, however). Employment has not really gone down appreciably, although the Obama people are convinced that the payroll situation will begin to improve this spring.
And if it doesn't? I've thought for some time that what's really going on is that the housing boom permitted a postponement of the real effects of America's collective decision to hollow out its industrial base, ship it offshore and allow its working class to go bust. The postponement was accomplished by debt, something else that never occurs to the Nobelist. The collateral for all that debt has deflated, and now the country is awash in red ink. The banks (which we absolutely, positively had to save!) don't lend money to anyone, and the reason for that is that no one really wants to borrow. And if they did, against what? The 2005 appraisal of their house?
I really hope I'm wrong and that the magical thinking which apparently comprises the sum and substance of our economic approach is....right. Because if it's not, then the U.S. government will have taken on about $1.4 trillion in additional debt, above and beyond its usual gargantuan budget, at a time when its actual revenues (taxes) are falling through the floor, its Social Security and Medicare entitlements are underwater and 17% of the country is unemployed. So that if prosperity is not around the corner, it might be something more ominous.
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