Old Remedies Wont Work this Time.

It remains to be seen if Myerson is correct. It seems that cutting taxes will mean that unless the government is willing to undertake even more debt social programs will be cut when they are most needed. Reducing interest rates will just encourage people to take on more debt that just postpones further crises. So far a recession is not even officially admitted although the stock markets certainly suggest that these are not good times. President Bush is to speak to the nation this afternoon so at least hot air is still in good supply.

Washington Post, Wednesday, January 16, 2008; A15
A Different Recession
The Old Remedies Won't Work This Time

By Harold Meyerson

In a normal recession, the to-do list is clear. Copies of Keynes are
dusted off, the Fed lowers interest rates, the president and Congress
cut taxes and hike spending. In time, purchasing, production and loans
perk up, and Keynes is placed back on the shelf. No larger alterations
to the economy are made, because our economy, but for the occasional
bump in the road, is fundamentally sound.

This has been the drill in every recession since World War II.

Republicans and Democrats argue over whose taxes should be cut the most
and which projects should be funded, but, under public pressure to do
something, they usually find some mutually acceptable midpoint and
enact
a stimulus package. Even in today's hyperpartisan Washington, the odds
still favor such a deal.

This time, though, don't expect that to be the end of the story --
because the coming recession will not be normal, and our economy is not
fundamentally sound. This time around, the nation will have to craft
new
versions of some of the reforms that Franklin Roosevelt created to
steer
the nation out of the Great Depression -- not because anything like a
major depression looms but because we face an economy that's been
warped
by two developments we've not seen since FDR's time.

The first of these is the stagnation of ordinary Americans' incomes, a
phenomenon that began back in the 1970s and that American families have
offset by having both spouses work and by drawing on the rising value
of
their homes. With housing values toppling, no more spouses to send into
the workplace, and prices of gas, college and health care continuing to
rise, consumers are played out. December was the cruelest month that
American retailers have seen in many years, and, as Michael Barbaro and
Louis Uchitelle reported in Monday's New York Times, delinquency rates
on credit cards, auto loans and mortgages have all been rising steeply
for the past year.

What's alarming is that this slump in purchasing power doesn't appear
to
be merely cyclical. Wages have been flat-lining for a long time now,
the
housing bubble isn't going to be reinflated anytime soon, and the
upward
pressure on oil prices is only going to mount. As in Roosevelt's time,
we need a policy that boosts incomes and finds new solutions for our
energy needs.

FDR's long-term income remedies included Social Security, the Wagner
Act
(which made it possible for many workers to join unions) and public
works projects -- including a massive electrification of rural America.
A comparable set of solutions today would include the passage of the
Employee Free Choice Act, which would enable workers in nonexportable
service-sector jobs to unionize without fear of being fired. It would
include a massive, federally financed program to retrofit America,
creating several million "green jobs" in the process.

On these issues, there's a clear difference between the two parties.

Barack Obama, Hillary Clinton, John Edwards and the congressional
Democrats favor these measures; the Republicans oppose them (though
John
McCain at least has begun speaking about creating green jobs).

What Republicans favor is simply more tax cuts, which will do nothing
to
address our deeper problems of income distribution and energy
dependence.

The second way in which the current downturn echoes the Depression is
the role played by our deregulated financial sector. Now, as then, the
financial foundations of our leading banks and other lending
institutions have turned out to be made of mush. Now, as then, this
news
has come as an appalling surprise not just to consumers but to many of
the banks themselves. Now, as then, the banks created such complex and
deliberately opaque financial vehicles -- all devised to make them a
buck every time they swapped some paper -- that they long ago lost
track
of the paper's true value.

In his time, Roosevelt, through the Securities and Exchange Act and
other legislation, compelled banks to be both more prudent and
transparent. Over the past 30 years, however, Wall Street has created a
host of new, unregulated institutions (such as private equity
companies)
and devices (such as the bundled, and bungled, resale of mortgages into
ever-larger investment pools). Now it's time to enforce some
transparency and prudence regarding financial institutions that have
been gambling with other people's money and lives.

When it comes to reining in Wall Street, however, the Democrats have
been AWOL almost as much as the Republicans have been -- not least
because their presidential candidates get so much money from Wall
Street. By refusing to take on the Street, however, they forfeit what
could be a potent issue this fall and lay the groundwork for yet
another
recession.