Newsweek: The Economy: A Darker Future For Us

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A Darker Future For Us
It's not just the financial crisis: higher taxes, energy costs and health spending also threaten growth.


We Americans are progress junkies. We think that today should be better than yesterday and that tomorrow should be better than today. Compared with most other peoples, we place more faith in "opportunity" and "getting ahead." We may now be on the cusp of a new era that frustrates these widespread expectations. It is not just the present financial crisis and its astonishing side effects, from bank rescues to frenzied stock-market swings. The crisis coincides with a series of other challenges—an aging society, runaway health spending, global warming—that imperil economic growth. America's next president takes office facing the most daunting economic conditions in decades: certainly since Ronald Reagan and double-digit inflation, and perhaps since Franklin Roosevelt and 25 percent unemployment.

It's fair to note that the U.S. economy has a long record of defying pessimistic predictions. Our national culture, with its pervasive ambition and its proven capacity for innovation, favors expansion. These are powerful forces. But it's equally true that economic progress has periodically stalled. The Great Depression lasted a decade; unemployment in the 1930s averaged 18 percent. The insistent inflation of the 1970s arrested living standards and the stock market (it was no higher in 1982 than in 1965). By 1979, inflation hit 13 percent, and "no other issue could rival as a pressure on the American mind," as the political writer Theodore H. White later noted. Americans do not have a divine right to rapid economic growth.

Could the economy now be at one of these historic inflection points, when its past behavior is no longer a reliable guide to its future? That is the central question confronting the next president. Only the most hardened among us cannot have been rattled by recent events that were scarcely conceivable two years ago. Government has taken over mortgage giants Fannie Mae and Freddie Mac. The Treasury has made investments in many of the nation's major banks. The Federal Reserve is pumping out $1 trillion to stabilize credit markets. U.S. unemployment is at 6.1 percent, up from a recent low of 4.4 percent, and headed toward 8 percent, by some estimates.

The great project of the next president is to improve the economy's stability without subverting its vitality. The good news is that even if the present slump deepens (an 8 percent peak jobless rate would make it the third-worst recession since World War II), the odds are that it won't approach the Great Depression in severity or suffering. Too much attention is being paid: the Fed and the Treasury have frantically supported the financial system—exactly the opposite of what happened in the 1930s when two fifths of the nation's banks were allowed to fail. And Congress is already contemplating a second "stimulus" package up to $300 billion or perhaps more; some private economists want $500 billion. .......(more)

The complete piece is at: http://www.newsweek.com/id/166821