Sunday, February 01, 2009
Recession can correct unwise behavior
Dan Radmacher
Recent columns
- Kaine saw much progress in his four years
- Virginia voted for gridlock on Tuesday
- Project Vote Smart tries to educate Virginia voters
- America should listen to this Cassandra
From the RoundTable blog
As President Obama and members of Congress struggle to assemble a stimulus package that might actually kick-start the faltering economy (and as members of Congress load it up with as many unrelated goodies as they can possibly stuff in it), the bad news continues to mount.
Thousands of layoffs are announced with distressing regularity in practically every sector of the economy. Every measure -- however drastic -- to turn the situation around has failed. The $350 billion spent by the Treasury Department's Troubled Asset Relief Program might as well have been dumped over a cliff for all the good it seemed to do. Actually, considering how little we know about how that money was spent, maybe it was dumped over a cliff.
In the depths of a recession, it's never easy to see the way out. But there always is one. We've been trying to tame the business cycle for more than a century. Every time government officials or economists believe they've finally figured a way to avoid recessions, the real-world economy teaches them a lesson.
But just as the bust is an inevitable part of that cycle, so is the boom that follows. It's just a matter of time. Right?
I hope so. But this recession seems deeper, and its root causes more persistent, than any that have come in my lifetime. The similarities to the Great Depression are, well, depressing -- especially when you consider it took the massive economic stimulus of world war to finally shake off the lingering effects of that bust.
Many feel pessimistic about the chances for a speedy recovery because they recognize that recent economic prosperity was built on a foundation of sand. The last economic expansion was fueled by unsustainable consumer spending made possible by an equally unsustainable real estate bubble.
Some good things are coming from the current pain. Americans are learning to live within their means, to delay gratification. The wisdom of saving for hard times is becoming too clear to a generation of Americans who've never witnessed genuine hard times.
We should not forget those lessons when good times return. But can an economy so dependent upon consumer spending recover if those lessons do take hold?
Obviously, the nation -- and the world -- should not depend economically on the overconsumption of Americans. That could be a jarring transition.
I don't expect that Americans will suddenly turn into Spartans or start saving every penny they earn, especially if they can be given some confidence about the future. There will be much pent-up demand to fuel a recovery.
But we cannot go back, should not go back, to where we were before. America should not have a negative savings rate. Credit card debt should not fuel our lifestyles. A home should be a place to live, not the equivalent of a debit card to tap equity.
Those changes will need to occur on a personal level. But the nation will very soon face a more collective wake-up call, and the current spending spree won't make it any easier.
Social Security and Medicare are both approaching their days of reckoning, when money coming in from payroll taxes will no longer be enough to pay benefits -- much less enough to pay benefits and mask a large portion of the federal deficit.
Americans are generally tougher than we give ourselves credit for. I'm confident we'll find a way through both the near-term and long-term challenges.
Recessions are painful, but they sometimes serve useful purposes. Economists liken them to wildfires that clear the underbrush from a forest, allowing fresh growth in their wake. Likewise, recessions purge inefficiencies and prepare companies for growth.
That purpose doesn't ease the pain, especially for those whose jobs get caught up in the fire.
This recession could accomplish even more if it gives Americans a lesson in fiscal prudence that actually takes hold.
Radmacher is the editorial page editor of The Roanoke Times.
