This Month's Topic: Is the current crisis proof conservative economics is wrong?
A banking crisis of massive proportions — at last look requiring perhaps a $1.5T bailout — has been the focus of government action for some time now, with the gurus of Wall Street strangely silent, and the perps who engineered the crisis — those big-brained big-time investment house geniuses — sneaking out the back door. The government is buying stakes in banks, and will even be setting up and running investment institutions. The private sector caused it, didn't see it coming, and has no answer for it. Is this proof-positive that conservative economics is a thing of the past?
Liberal Response:
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Liberalism won long ago. When laissez-faire capitalism drove us and the world into the Great Depression, and people did not have a safety net of programs to protect them, they turned to their government to reform the system. Since FDR's New Deal, there have been no more depressions, great or otherwise. There have been dips in the business cycle, but government intervention in prudent amounts has righted the ship. In 1975, monetary policy limited the damage done by the oil shocks. In 1980, the Fed calmed the uncertainty caused by inflation by wringing inflation right out of the economy. A recession ensued, but then followed a long run of steady growth. In this crisis of the moment we aren't near the unemployment numbers of 1982 (6% now versus 9% then). The promise of government money is encouraging the stock market, which should be in rebound by mid-2009. Voters are counting on the new administration to do something to combat high healthcare costs, the solution to which will greatly help the economy and our world competitiveness.
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Republicans and Democrats alike are looking for low inflation and low unemployment numbers. They even find agreement in principle on a stimulation plan — the Keynesian idea of government spending to kick-start the economy. Both are also looking for a new paradigm for the operation of investment banks, so that the safety of their investments is clear. And it will be a bi-partisan recommendation that Congress acts on.
— Editor
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