Interesting Times

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December 24, 2008 10:54 a.m.

Back in the 1990s, one of the common refrains about the Clinton administration was that the prospect of a truly historic, game-changing presidency was permanently beyond Clinton’s grasp because of the lack of the kinds of challenges and crises in which really profound change and reform is possible. I was never clear in my mind at the time how much this was a bug in Clinton’s own personal bonnet, or a product of the baby-boomer self-obsession that animated (and, let’s be honest, continues to do so) the Clinton era press corps. But for the purposes of the present discussion, I’m not sure it makes a difference since the general point was true. Be careful what you wish for, of course. Peace and prosperity is far the preferable way to live life. But there’s no escaping the fact that deep institutional change, the kind the country inevitably needs at least every few decades is only possible in times of deep crisis and challenge. And whether or not we were looking for it, we’ve got it.

It’s looking for trouble quoting Tom Friedman in a blog post in anything but a critical matter. But his column this morning is right that the kind of very necessary crisis-coping bailouts we’re talking about are really only about righting the ship. Nothing more. As Krugman argued yesterday, it will be a far different thing getting the country into a mode where we’re not reliant on a constant run of bubbles.

Says Krugman …

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.

The prosperity of a few years ago, such as it was — profits were terrific, wages not so much — depended on a huge bubble in housing, which replaced an earlier huge bubble in stocks. And since the housing bubble isn’t coming back, the spending that sustained the economy in the pre-crisis years isn’t coming back either.

To be more specific: the severe housing slump we’re experiencing now will end eventually, but the immense Bush-era housing boom won’t be repeated. Consumers will eventually regain some of their confidence, but they won’t spend the way they did in 2005-2007, when many people were using their houses as ATMs, and the savings rate dropped nearly to zero.

All of which means the first half of 2009 is critical for the future in the country. Because even though the kind of deep change the country needs — retooling of the economy, industrial sector, energy policy, etc. — will take years, the pace and scope will be defined early, when Obama’s clout and political power are at their height.

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