$787 billion, be damned.
While economists and talking heads are wasting our time pontificating with numbers and charts, bears and bulls, Nobel prize winning economist Paul Krugman provides a pretty simple and straight forward way to end a recession: By being patient. Says Dr. Krugman:
Consider housing starts, which have fallen to their lowest level in 50 years. That’s bad news for the near term. It means that spending on construction will fall even more. But it also means that the supply of houses is lagging behind population growth, which will eventually prompt a housing revival.
Or consider the plunge in auto sales. Again, that’s bad news for the near term. But at current sales rates, as the finance blog Calculated Risk points out, it would take about 27 years to replace the existing stock of vehicles. Most cars will be junked long before that, either because they’ve worn out or because they’ve become obsolete, so we’re building up a pent-up demand for cars.
The same story can be told for durable goods and assets throughout the economy: given time, the current slump will end itself, the way slumps did in the 19th century. As I said, this may be your great-great-grandfather’s recession. But recovery may be a long time coming.
The closest 19th-century parallel I can find to the current slump is the recession that followed the Panic of 1873. That recession did eventually end without any government intervention, but it lasted more than five years, and another prolonged recession followed just three years later.
I suppose this makes about as much sense as anything I’ve heard up to this point.
After WWII, Europe found itself in shambles. But it was through the European Recovery Program, coupled with strategic policies with the U.S. that Europe was able to rebound fiscally. Job creation and idle resource development were key to restoring the economic stability of the continent when war nearly pulverized any hopes of recovery. The parable of the broken window – it would appear – has some credence. In certain circumstances, the road to recovery starts with simply fixing stuff that is broken.
Had President Bush not jumped the gun, the conflicts in Iraq and Afghanistan would have been perfect economic recovery tools (though some would argue that irresponsible spending like this is a part of what goe us in this economic turmoil in the first place). Not that I would want to see profiteering at the expense of lives, but WWII provided a succinct model of how the war machine (and the eventual rebuilding efforts) can indeed boast an economy.
On the far less sadistic side, I think President Obama is on to something with his increased interest in public works projects, green technologies, and education. While we can still boast international leadership in many respects, there are certain other areas where we are falling well behind what has been achieved by other contemporary societies. Investing in the people is a good start.