Throughout the week, Clay Risen, the
managing editor of Democracy, will be covering economic developments for us on
The Plank.
There are a
lot of people putting a lot of thought into the last week's worth of business
news. But if there's anything like a conventional wisdom to be drawn, it's this:
1) We're definitely in recession territory--given the vagaries of spot data, we don't
know if we're just before one, in the middle, or at the tail end--and it's probably going to
be worse than the last.
2) So far the worst of
the damage has been limited to Wall Street banks and high-risk mortgages. 3) A combination of luck and timely Fed action
has prevented things from getting out of hand, but as the brokers all say, past
performance is no guarantee of future success. 4) We kind of had all this coming, and since so
far things aren't all that bad, it might not be a terrible idea to let the chips
fall where they may, with the federal government standing by to ease the worst
of it and make sure the damage doesn't spread outward. That means aid to
responsible homeowners who somehow got trapped in bad mortgages, combined with
new regulations on mortgage lenders and brokers. It also means having enough
foresight to intervene selectively, but not capriciously, on Wall Street; the
risk of creating moral hazards is real, but so is a massive banking
implosion.
What this
all points to is a new balance between facilitating responsible risk-taking and
government activism to limit abuse and offer a corrective hand when absolutely
necessary. Think of it like medicine: There's no cure to the common cold, and an
occasional cold is probably a good thing, if only as an indicator that our body
is worn down and needs rest. But once we have a cold, smart people take the
right steps to prevent it from worsening into a sinus infection or what have
you. The government shouldn't be there to prevent recessions; those are normal,
healthy parts of the business cycle, and in any case it probably couldn't if it
tried. But it can help the people who are hurt by recessions, and when led by
smart people, it has
the capacity to prevent disorderly crunches that could lead to much worse.
--Clay
Risen