Can Obama Lead the U.S. Out of Recession?

by Will Wilkinson on March 18, 2009

Russ Roberts rightly says “no,” and also strikes the right note of professional modesty:

So it’s a time for humility rather than hubris in my profession. Obama’s economic team, for all its brain power and good intentions, is in uncharted territory. There’s no recipe or manual or roadmap for getting the economy back on track. No one is quite sure how to correct imbalances in financial markets and the housing market. And no one knows how to create confidence, the biggest element lacking in the current economic climate.

No man or woman runs the economy. No man or woman or team of people can possibly plan the evolution of the economy in the coming months. America will come out of the recession but the time and pace are unknown. Obama can help. But he can just as easily slow down any recovery. Some part of the current mess we’re in is the result of erratic government policy that has added to the uncertainty facing consumer, investors, and entrepreneurs.

I certainly don’t mind aggregate demand economics as long as folks realize the limits of the stuff. I take it that one of the main lessons of living macro is that a stable framework of well-wrought rules tends to do better in the long run than periodic attempts to trick folks with the government’s amazing money-printing and money rearranging powers. I think this sort of thing would get through to people better if it were possible to to communciate the economy’s strategic micro-foundations: an economy is a massive, immensely complex coordination game. Maybe we’d like to think that there are Big Chiefs with scalpels and tweezers for fingers, but the fact is Big Chiefs have hams for hands. If the economy is a glassed-in ant colony and a recession is a confusion of non-connecting tunnels then “corrective” government intervention is banging the glass with a fat fist, like Fonzie banging a Jukebox. Barack Obama may be one cool cat, but the government ain’t no Fonzie. Mostly you get disoriented ants.

  • Mr. Econotarian
    We needed the contact gold clause ban in 1933, as we needed to devalue the dollar but not put everyone who was a debtor way underwater through contracts payable in gold. There is one example of Federal expansion of power that actually worked, in a Macro sense.

    Rare, though they are!
  • So it’s a time for humility rather than hubris
  • LarryM
    I think that this is largely true, but it's at least a little jarring to read this after some of your previous comments suggesting that Obama hasn't done enough with regard to the financial crisis. Bracket the stimulus package and the other initiatives. True, from a libertairian perspective there is a lot there not to like, but no one is claiming that those initiatives are going to make the financial crisis worse. Shouldn't a libertarian, especially one who believes what you say here, applaud the fact that Treasury has been moving slowly/cautiously? I mean, it's a bit jarring to hear a libertarian criticizing the government for not doing enough.
  • Plenty of people are claiming that the stimulus package and other initiatives make the financial crisis worse. They create a context of uncertainty that stymies the coordination of capital. That's the thrust of Russ's concluding point.

    I don't mind if Treasury is moving cautiously. I do mind the administration's faltering and opaque approach.
  • LarryM
    No, that isn't the thrust of his concluding point, at all. His point is that the initiatives could slow the recovery. That is altogether different from saying that it could make the finanical crisis worse.

    It seems to me that either we are using very different definitions of "financial crisis," or you are conflating two very different things. By financial crisis, I assume we are talking very specifically about the problems facing the banking/financial sector, and the risk that these problems could become even more acute. The recession is a related but distinct problem. Sure, many people are saying that the stimulus package, etc., could "slow down any recovery," but that is not the same thing as saying that it could specifically make the financial crisis worse. Apples and oranges.

    I probably should have been more specific, but I was refererncing your post from a few days ago when you quoted, and agreed with, criticism from Europe of the handling specifically of the financial crisis. So let me put it this way - setting aside vague statements about the approach being faltering or opaque, what, specifically, would you have the adminstration do specifically with regard to the finacial crisis?

    As for "not minding" the cautious approach, that would seem to undercut your post from a few days ago (the European critic was criticizing just that approach). Moreover, I would think that, given your policy preferences, many of which I share, you would not merely "not mind" the caution, but you would actively applaud it.
  • uknowbetter
    Government is not efficient. The more it does, the more inefficiency it creates.
  • This post is a study in mixed metaphors. But I like it.
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