This Saturday, Dominique Strauss-Kahn said the world’s advanced economies are “already in depression.” “The worst cannot be ruled out,” the chief of the International Monetary Fund declared. That assessment is consistent with the increasingly dire pronouncements from President Obama, who now talks about a “profound economic emergency.”
Undoubtedly, both of them came out with their gloomy statements so they could get what they wanted — more resources for lending in the case of the IMF and passage of the stimulus bill for the American president. Yet that does not mean they are wrong.
Many analysts shy away from categorizing the downturn in stark terms. They say, for instance, that economic indicators are not nearly as bad as they were in the 1930s. Of course, they’re right, but that is only because we are in the initial stages of the crisis.
The irony is that if Messrs. Strauss-Kahn and Obama are right — and they are — then the relief measures they are seeking are inadequate. The truth is that virtually nothing multilateral institutions or governments can do at this time can fix the fundamental causes of the downturn. Governments can — and should — relieve pain by measures such as unemployment insurance, but all their grander schemes will only make things worse. Government measures like President Bush’s TARP have created problems, and President Obama’s schemes are no more promising than his predecessor’s. His costly stimulus bill will not stimulate — or its positive effects will be lost as the crisis gathers momentum — and Treasury Secretary Timothy Geithner’s bank plan is a disaster, and not just because he did not provide sufficient detail yesterday.
So agree with President Obama when he says this is no “run-of-the-mill recession.” In fact, it is no recession at all. And that’s why his government cannot do much about it for the next few years, perhaps for the next half decade. Although Alan Greenspan is now discredited, we still believe in Greenspan-like figures implementing plans, making adjustments, solving problems. Yet because the downturn is as severe as Strauss-Kahn and Obama have just told us, only “markets” — in reality, the world’s six billion people all trying to better their lot — can get us out of this.