I should confess that while many have feared economic doom and gloom, I've been pretty relaxed and calm. My mom's a teacher, and Duke's financial aid initiative isn't going anywhere before next school year, so I figure I'm OK for a least a little while. But even for me, this week has been a little worrisome.
Between $30 billion extra for AIG, the house voting to let bankruptcy judges rewrite mortgages, and the government acquiring a nearly 40 percent stake in Citi the government is dipping more deeply into the financial system than it has since the Great Depression. Granted, many politicians have called this crisis the worst since the Great Depression, but to me that seems a little dubious. Though the market sits at about a twelve-year low and unemployment is at about 8 percent, the figures aren't nearly as bad as the actual Great Depression when unemployment rose as high as 25 percent.
Still, the White House and the Democrats seem to be using the opportunity to push measures that would have been much more difficult to push in normal times. (Aside: After two decades of huge consumption, it's hard to say what 'normal' is) As Rahm Emanuel said shortly after the election, crises can be used to advance agendas that wouldn't have been as feasible at other times. Dick Cheney and Karl Rove could have told him that.
Times are bad though. That not in question. And certainly the move toward laissez faire and deregulation that the Bush administration pushed can't continue. There's no doubt that the government has to step in at some level. The question is a matter of degree. Keynesian measures are definitely necessary now, but not to the degree that they threaten to replace or mute the effects of private enterprise and competition. I'm no expert, but with injections of trillions of dollars into the economy in such a short period of time it seems like a plausible risk.
The people working on all of this are smart and pretty trustworthy. But I can't say I don't worry a little...