Cliffnotes: The Economy

As the stimulus is discussed on Capitol Hill, and politicians race to microphones to call this the worst economic downturn since the Great Depression (worse than 1982?), most Americans are left to wonder whether the stimulus will actually work. We all know it will be extremely costly, but will the stimulus stimulate? Bruce Bartlett (no relation), a contributor to Forbes Magazine and former Treasury Department economist, wrote a terrific article outlining America's economic downturns since the Great Depression, the steps taken by the government in reaction, and the consequences. It's a guide to American economics, the cliffnotes version. 

Not surprisingly, the government and its agencies usually drop the ball. Neither the Federal Reserve nor Presidents Hoover or Roosevelt could correctly time monetary and fiscal policy measures to effectively fight the Great Depression. It was blind luck that WWII forced FDR to play a winning hand. Keynesians sent inflation to the moon in the 1960s and 1970s by thinking that budget deficits were the answer to every problem. Finally, investors inflated a bubble in the 1990s believing that the "Greenspan put" would never allow it to pop. Talk about when genius failed. Testifying before the House Government Oversight Committee last October, Alan Greenspan admitted to "flaws" in his policies and philosophy in wake of a "once in a century credit tsunami." Astute observation Alan. 

Will the stimulus stimulate? No one can be sure right now, but there is a lot of infighting among economists all across the US. In this case, the Bartletts think alike in that both of us believe controlling inflation following the stimulus will require deft touch. I sure hope it works by 2010. I need a job!