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No Return to Normal: Why the economic crisis, and its solution, are bigger than you think

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marmar Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Mar-19-09 06:44 PM
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No Return to Normal: Why the economic crisis, and its solution, are bigger than you think
from Washington Monthly:

No Return to Normal

Why the economic crisis, and its solution,
are bigger than you think.

By James K. Galbraith


Barack Obamas presidency began in hope and goodwill, but its test will be its success or failure on the economics. Did the president and his team correctly diagnose the problem? Did they act with sufficient imagination and force? And did they prevail against the political obstaclesand not only that, but also against the procedures and the habits of thought to which official Washington is addicted?

The president has an economic program. But there is, so far, no clear statement of the thinking behind that program, and there may not be one, until the first report of the new Council of Economic Advisers appears next year. We therefore resort to what we know about the economists: the chair of the National Economic Council, Lawrence Summers; the CEA chair, Christina Romer; the budget director, Peter Orszag; and their titular head, Treasury Secretary Timothy Geithner. This is plainly a capable, close-knit group, acting with energy and commitment. Deficiencies of their program cannot, therefore, be blamed on incompetence. Rather, if deficiencies exist, they probably result from their shared background and creedin short, from the limitations of their ideas.

The deepest belief of the modern economist is that the economy is a self-stabilizing system. This means that, even if nothing is done, normal rates of employment and production will someday return. Practically all modern economists believe this, often without thinking much about it. (Federal Reserve Chairman Ben Bernanke said it reflexively in a major speech in London in January: "The global economy will recover." He did not say how he knew.) The difference between conservatives and liberals is over whether policy can usefully speed things up. Conservatives say no, liberals say yes, and on this point Obamas economists lean left. Hence the priority they gave, in their first days, to the stimulus package.

But did they get the scale right? Was the plan big enough? Policies are based on models; in a slump, plans for spending depend on a forecast of how deep and long the slump would otherwise be. The program will only be correctly sized if the forecast is accurate. And the forecast depends on the underlying belief. If recovery is not built into the genes of the system, then the forecast will be too optimistic, and the stimulus based on it will be too small.

Consider the baseline economic forecast of the Congressional Budget Office, the nonpartisan agency lawmakers rely on to evaluate the economy and their budget plans. In its early-January forecast, the CBO measured and projected the difference between actual economic performance and "normal" economic performancethe so-called GDP gap. The forecast has two astonishing features. First, the CBO did not expect the present recession to be any worse than that of 198182, our deepest postwar recession. Second, the CBO expected a turnaround beginning late this year, with the economy returning to normal around 2015, even if Congress had taken no action at all. ........(more)

The complete piece is at:

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madrchsod Donating Member (1000+ posts) Send PM | Profile | Ignore Thu Mar-19-09 06:53 PM
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1. galbraith understands ....
others have`t a clue
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bemildred Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Mar-21-09 06:54 PM
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2. History is largely a list of evidences that economies are not self-stabliizing.
Since no economy has ever proved to be stable. I mean isn't that what "progress" is all about?
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Miss Authoritiva Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Mar-25-09 12:04 AM
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3. Yes Yes Yes
This is what I want. I don't want that scam-prone, taxpayer-subsidized PPPIP plan (Geithner's latest) -- it isn't going to work. Galbraith is right: there is a limitation and a deficiency of ideas here. The Treasury Department is trying to superglue back together all the banking behemoths without realizing that there is neither enough glue nor any valid reason to try to re-create the superbanks. If anything, we should be planning for the orderly disassembling of the superbanks.
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acmavm Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Mar-25-09 04:49 AM
Response to Reply #3
4. The only 'plan' that they've had from Day 1 is how to finish the job
of bankrupting the country for the benefit of Wall Street and the Predator Class.

We thought it would be bush** who would be the guy to empty the Treasury and had it all over.

Shit, it was the guy we elected.

If that aint' a kick in the pants.
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