There is an optimistic scenario for the U.S. economy: Europe gets its act together. The pace of world growth quickens, igniting demand for U.S. exports. American politicians agree to a credible compromise that gives the economy a fiscal boost now and restrains deficits later. The housing market turns up. Relieved businesses hire. Relieved consumers spend.I find it funny. I'm reading Ron Suskind's book Confidence Men: Wall Street, Washington, and the Education of a President. He makes it clear that in August 2007 Wall Street insider Robert Wolf let Obama know that a really big crash, not a plain vanilla recession, but a big crash was coming: "This is a market-driven disaster that could crush Wall Street and with it the whole U.S. economy."
But there are at least two unpleasant scenarios: One is that Europe becomes the epicenter of a financial earthquake on the scale of the crash of 1929 or Lehman Brothers 2008. The other is that Europe muddles through, but the U.S. stagnates for another five years, mired in slow growth, high unemployment and ugly politics…. No one would intentionally choose the second or third, yet policy makers look more likely to stumble into one of those holes than find a path to the happier ending.
Why? Liaquat Ahamed has been pondering that question…. "Is it because people don't know what to do (or there's disagreement about what to do)," he wonders, "or is it the politics, particularly the reluctance to ask some people to pay for the mistakes of others?" "In the '20s," he says, "there was much more ignorance"—the disastrous fealty to the gold standard, the Federal Reserve's failure to understand its role as lender of last resort. Today? Mr. Ahamed can't decide if it's ignorance or insurmountable political barriers that keep governments from doing what needs to be done.
In the 1920s, two crises fed on each other: a banking crisis in the U.S. and a sovereign-debt crisis in Europe. (Sound familiar?) In our time, the U.S. handled its banking crisis better than it did back then. (Yes, much better, despite missteps and criticism.) But Europe? The problems go well beyond the inevitable Greek default on its debts. "We are discussing a broken ankle in the presence of organ failure," Lawrence Summers, the former U.S. Treasury secretary, quipped last week about the fixation on Greece….
That was 4 years ago. Finally in September 2011 Obama announces that he is "worried" about jobs. For those who have been unemployed for 3+ years that has to be good news. But Obama and Wall Street have known for 4 years that the US was going to go into the ditch with a world class depression. But he has done nothing.
It isn't only Obama. The political leadership in Washington continue to do their best imitation of Nero fiddling while Rome burns. They are jockeying to win in 2012 while the country is in the gutter and tens of million are unemployed, many more have joined the impoverished below the "poverty level", many millions have lost their homes, and the future has remained bleak for 3 full years. Nothing. That is Washington's answer. Nothing.
Oh sure, Washington talks up "jobs" but it also talks up "deficits and debt". It talks up a war here and a war there. It talks up putting the pledge of allegiance and Bible reading into every classroom. It talks up making math mandatory until you are 45 so that America can be competitive with the rest of the world. It talks up putting Santa Claus in charge of the poverty program and putting stop loss orders on tooth fairies so that the hungry can wake in the morning with a can of beans under their pillow. Washington is pathetic.
History teaches us that when leaders can't or won't lead, then the people rise up and find their own leaders. That time has come.