sitting on the edge of the sandbox, biting my tongue

August 8, 2011

Ezra Klein: Saving Socialism from Obama?

Filed under: politics — Tags: , , — edge of the sandbox @ 11:30 am

Via Always on Watch, who points out the linguistic slight of hand, economic policy implications and has a cool graphic to go with the story, Ezra Klein reports on his talk with Harvard economist Ken Rogoff:

Recessions, he argues, imply a very particular economic phenomena: a business-cycle recession, in which the drop is quick, and the recovery is usually similarly swift. That is not what we’re in. That is not what financial crises are. And mistaking one for the other has, in his opinion, cost us a fortune.

Financial crises are not about the business cycle falling out of whack. They’re about debt. Lots of it. And that’s why they’re so resistant to efforts to speed a recovery. Whereas you normally get out of a recession by lowering interest rates and persuading consumers to spend, the period after a financial crisis is marked by consumers trying to dig out from under a mountain of borrowed money. You can accelerate that process, but it’s hard to do. But first you must correctly diagnose the problem.

Rogoff has suggested we call this period the “Great Contraction” in order to distinguish it from more normal recessions. You may or may not like the name, but consider this: When we talk about double-dip recessions, that implies, as the National Bureau of Economic Research has said, that the recession ended in summer 2009, and we’ve been recovering ever since. The Great Contraction, conversely, suggests we have been, and remain, mired in an ongoing financial crisis. Which better describes the economy you see?

Get out of a recession by lowering interest rates and persuading consumers to spend?  Oh.  I thought we had to borrow a trillion for “shovel-ready” projects.  If we are in the “Great Contraction” (aren’t all business cycles contractions and expansions, with prolonged contractions called depressions?) no recipe to end an ordinary recession would work, including government spending.  So if Obama screwed up, it’s because his diagnosis was wrong, not because government spending doesn’t work.

There is more to Obamanomics then just spending — all around erratic policies don’t help.  The magnitude of debt out of which an average American family need to climb is not to be understated.  Still, it seems like Klein is saving Keynesian economics from Obama.

UPDATE: For more liberal new-found grunges with the One, see Political Junkie Mom’s Ouch!



  1. I hate to admit it but Klein finally said something that makes sense.
    Nice catch!

    Comment by Conservatives on Fire — August 8, 2011 @ 11:59 am

  2. Obama and his party have interfered too much in the business cycle and, like throwing a rock into a pond, the uncertainty we are seeing is clouding everything up like mud kicked up from the bottom.

    Well, that’s my Chauncy Garder analysis anyway.

    Comment by Harrison — August 9, 2011 @ 1:02 pm

  3. Thanks for the link! I didn’t see ths from Klein, though I’m at the point of willfully ignoring him because he’s such a little pogue. ; )

    Comment by pjMom — August 9, 2011 @ 2:37 pm

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