Monday, August 9, 2010

The Need for Parallel Universes

The political primary season is upon us with much hue and cry from politicians on the far right that the Federal Government response under Bush and Obama to the financial crises was wrongheaded. Government should not have interfered with “necessary market adjustments.” If firms (investment banks, commercial banks, auto firms) went bankrupt, them’s the breaks. Our biggest problem, they claim, is the ballooning Federal deficit.

Here’s where a parallel universe would be useful. In this alternate universe, we could see the effects of the advocated nonaction during the financial crises. Alan Blinder (Professor of Economics at Princeton) and Mark Zani (Chief Economist at Moody’s) published a paper on July 27, 2010 in which they estimate without the massive government intervention, GDP would be 11.5% lower and 8.5 million MORE jobs would have been lost.

I do not claim that each and every dollar was well spent. I’ve already discussed in a previous post how worthless the $8,000 home purchase credit for new buyers was. However, when I look at my own spending, in retrospect I wasted quite a bit of money on goods or services that didn’t meet my expectations. If I can’t get it perfect on a micro-level of one person, why would I expect the Federal Government not to waste some money here and there? The main thing is they provided liquidity and stability when the global economy needed it.

Without parallel universes to provide the “true” answer to what if questions, those not in power point to the current problems and wail how bad it is—and no one can prove them wrong.

I want to express now my personal thanks for those who took risks during those dark days and saved us from worse. Thank you.

~ Jim

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