So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government.Of course the right wing loonies will convince you that things were going tickety-boo under George Bush and it was innauguration day, January 20, 2009 when things plunged off a cliff. All that noise back in September 2008 was simply rabid Democrats who staged a palace coup and got a body double for George Bush to sign into law papers that allowed a government bailout of banks.
Just to be clear: the economic situation remains terrible, indeed worse than almost anyone thought possible not long ago. ...
... the latest flurry of economic reports suggests that the economy has backed up several paces from the edge of the abyss.
A few months ago the possibility of falling into the abyss seemed all too real. The financial panic of late 2008 was as severe, in some ways, as the banking panic of the early 1930s, and for a while key economic indicators — world trade, world industrial production, even stock prices — were falling as fast as or faster than they did in 1929-30.
But in the 1930s the trend lines just kept heading down. This time, the plunge appears to be ending after just one terrible year.
So what saved us from a full replay of the Great Depression? The answer, almost surely, lies in the very different role played by government.
Probably the most important aspect of the government’s role in this crisis isn’t what it has done, but what it hasn’t done: unlike the private sector, the federal government hasn’t slashed spending as its income has fallen. (State and local governments are a different story.) Tax receipts are way down, but Social Security checks are still going out; Medicare is still covering hospital bills; federal employees, from judges to park rangers to soldiers, are still being paid.
All of this has helped support the economy in its time of need, in a way that didn’t happen back in 1930, when federal spending was a much smaller percentage of G.D.P. And yes, this means that budget deficits — which are a bad thing in normal times — are actually a good thing right now.
In addition to having this “automatic” stabilizing effect, the government has stepped in to rescue the financial sector. You can argue (and I would) that the bailouts of financial firms could and should have been handled better, that taxpayers have paid too much and received too little. Yet it’s possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts things would have been much worse.
The point is that this time, unlike in the 1930s, the government didn’t take a hands-off attitude while much of the banking system collapsed. And that’s another reason we’re not living through Great Depression II.
Last and probably least, but by no means trivial, have been the deliberate efforts of the government to pump up the economy. From the beginning, I argued that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, was too small. Nonetheless, reasonable estimates suggest that around a million more Americans are working now than would have been employed without that plan — a number that will grow over time — and that the stimulus has played a significant role in pulling the economy out of its free fall.
These same right wing nuts are busy right now with a town hall putsch bringing "democracy" via shout-downs and fisticuffs. They know you don't want "socialized" medicine, so they will make sure that the humdinger of costly "free" medical system that American's enjoy will continue to bloat until it brings the economy to a grinding halt. But at least Americans can proudly hold their heads high because they will have saved their freedom:
La majestueuse égalité des lois, qui interdit au riche comme au pauvre de coucher sous les ponts, de mendier dans les rues et de voler du pain.
The law, in its majestic equality, forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.
Anatole France, Le Lys Rouge [The Red Lily] (1894), ch. 7
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