Robert Stein 1924-2014

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Monday, August 10, 2009

Stimulus as a State of Mind

Nothing significant has happened, but suddenly the economy is looking better. Excitement over snippets of good news, or more accurately less-bad news, is underscoring how much of it all is psychological and suggesting that Obama's aggressive stimulus attack, no matter how flawed, wasteful and even wrong-headed, has been crucial to keeping us from going over the edge.

In the past few days, the usually sober New York Times has been agog with happy talk about the economic crisis, climaxed today by a Paul Krugman assertion that Big Government "saved us" by not fearfully cutting spending and "unlike in the 1930s, the government didn’t take a hands-off attitude while much of the banking system collapsed."

This follows an analysis saying: “A report card on the stimulus plan offered by analysts nearly six months after it was passed by Congress suggests that the punch from increased government spending has helped the economy begin to bottom out faster than it would have otherwise.”

Yet another interpretive piece concludes that "the evidence is now pointing pretty strongly in one direction: history books may conclude that the financial crisis of 2008 turned out to be far less bad than it could have been and that Washington deserved much of the credit."

Before passing all this off as liberal wishful thinking, contrast today's situation with the economic free fall of the 1970s when accidental president Gerald Ford tried to cheerlead the nation out of stagflation with WIN buttons (Whip Inflation Now) and presided over low growth and runaway inflation that persisted through the Carter years into the Reagan era.

It will take months, even years, before the verdict is in on the wisdom of every aspect of the enormous Obama spending and deficit growth, but one thing is already clear: All that furious activity has been more reassuring than a President McCain approach of tax cuts and hoping for the best.

For the economy as a whole, Cash for Clunkers may signify the importance of getting consumers to feel that the sky is not falling and, given enough time, they will do the rest.

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