January 28, 2009


The case for doing nothing (EAMON JAVERS & JIM VANDEHEI, 1/28/09, Politico)

The Do-Nothing Crowd also points to some of the hidden upsides of the recession — developments they say are already helping position the U.S. economy for a recovery.

The most noticeable impact is that housing prices are coming down to a more sustainable level. For first-time buyers, this is reopening a path to homeownership that had been all but blocked by hyper-inflated prices. The National Association of Realtors reported this week that housing sales rose 6.5 percent from November to December, largely on the strength of bargain hunters snapping up foreclosed properties. That could be a sign that the housing market is on its way to a balancing point at which lower prices once again draw new buyers into the system.

In the meantime, weak companies that have problems competing are being weeded out of the system. For example, Circuit City announced that it would liquidate its stores and assets, laying off an estimated 34,000 employees. That’s not necessarily a tragedy, argues Cato’s Edwards. “The weak are getting weeded out. Circuit City had crappy customer service, and I’m glad that Best Buy will survive and Circuit City will not.” Ideally, the collapse of weaker competitors is an economic opportunity for the stronger survivors to gain market share — and hire new workers.

Another galvanizing effect of the downturn is that companies have been forced to face the reality that they haven’t been making products that customers actually want to buy. General Motors CEO Richard Wagoner, for example, conceded in testimony on Capitol Hill in December that his company had made mistakes, including “not moving fast enough to invest in smaller, more-fuel-efficient vehicles for the U.S. market.” As the old saying goes, imminent death has a way of focusing the mind.

An even better consequence of recession, say the Do-Nothings, is that American families are finally starting to pay down the dangerously high debt levels they’ve accumulated. One of the reasons last year’s economic stimulus failed, in fact, was that Americans used the money to pay off bills, not to spend on new products. In a country that had developed a negative personal savings rate, that’s probably a good thing.

And here’s something truly surprising: The recession might even be good for your health. The New York Times reported that Americans are drinking less alcohol, noting that a “study based on surveys by the Centers for Disease Control and Prevention from 1987 through 1999 found that drinking in this country generally drops during economic hard times, especially among heavy drinkers.” That may be not due to a renewed sense of sobriety and responsibility, but rather to the decline in workers’ discretionary income. Still, liver surgeons will tell you that less drinking is probably healthy.

For all that, the Do-Nothings fully expect to lose the argument in Washington this week. The political momentum is all on the side of the stimulus. “Politicians feel a need to validate their own political authority, and they feel they have to do something,” says Robert Romano of the nonprofit group Americans for Limited Government.

...than paying down debt and putting money in savings accounts during a deflationary epoch? These guys are making aesthetic arguments, not economic ones.

Posted by Orrin Judd at January 28, 2009 8:49 AM
blog comments powered by Disqus