Category: The latest on Economics
More on Economic Recovery…
Unsatisified with Ezra Klein response, I sent Mark Thoma of the Economist’s View an email asking him what his thougths were on my concerns over the so-called “economic recovery” up ahead:
It is my belief that the economy cannot go back to where it was before, the finance, housing, and US auto industries, for example, have to change, and people also need to save more and borrow less. While the government can help to facilitate these changes, it is really up to the private sector to take the initiative. There is a lot that must change, and this is one reason I believe the recovery will be a slow one. Change takes time.
On the other issue, while this is going on, the best the government can do is provide a bridge – government spending can help people to get through the bad times with less of a struggle. But the government cannot support the economy forever, and at some point the private sector must take over and – through recovery and growth – absorb what the government has been doing and move people from the public sector to the private sector.
None of that can happen until the financial sector is repaired, and as you note we also have other structural changes to worry about as well. So I don’t see the government so much in terms of leading the change, but instead in a role of providing a bridge and doing their best to promote and facilitate the needed change within the private sector.
Economic Recovery in Dire Straits
Why are economists already talking about a “recovery” while the banking system has not yet been restructured, the financial regulations have not been laid out, the health care issue has not really been solved, education is still clearly lacking resources… no change has occurred. Sure, the US economy will show growth, but what good is that if we return to the old ways which got us in the crisis in the first place?
If not now (or, a couple of weeks ago), are Governments going to be able/willing to restructure anything when the economies return to their “healthy states”?
Update: Ezra Klein answered my question on his live blog:
Well, we can recover from the crisis without necessarily getting on stable long-term footing. The result of that will probably be boom-bust cycles. A few good years followed by a few bad followed by a few good followed by a few bad. It’ll be an excellent economy for lovers of volatility. But that said, returning to a more normal unemployment rating (5 or 6 percent, say) would be a real improvement over where we are now. My concern, however, is that recovery will sap the political system of the will to make the long-term changes.
On the other hand, it’s not clear the political system ever had the will for the long-term changes.
