I have three friends, all of them either geniuses or merely brilliant, who are active in the finance sector. One is at Harvard Business School, one is studying for a PhD in economics at Cambridge, and one is the personal economic advisor to a mind-bogglingly wealthy Middle Eastern royal.
My talents, however, lie elsewhere. So given my mathematical shortcomings, and thus inability to comprehend matters financial and economic beyond a layman's knowledge base, I have preferred to rely on my friends' opinions rather than my own intuitions in this field. And yet, given the cacaphony of voices each offering an opinion on the current and ongoing financial crisis, I thought, what the hey, might as well add my own voice to the chorus.
First of all, I have a hard time comprehending how so many people in the finance sector (though largely not my friends, mind you) could have been so wrong for so long. The credibility of conservative economists, The Wall Street Journal, the entire I-banking sector, and many others has obviously been shot to pieces, though of course, that hasn't stopped anyone who falls under this heading from insisting that we must still listen to them. Obviously, this all smacks of 20 20 hindsight to some extent, but really, the handwriting was on the wall for a long time.
Secondly, though, it seems that a separate industry has grown up saying how horrific this crisis truly is- including some who have even called it potentially worse than the Great Depression. But this too, is ridiculous. The fact of the matter is that this crisis will hardly be as bad as many in the past precisely because income standards have risen so high in the interim. Even if the American economy contracts 2 per cent for the next few years, this would simply stand to bring us back as a nation as a whole to where we were a few years ago.
Yes, some people have lost their shirts (though I have no sympathy for anyone who invested more than 10 percent of their savings with Bernie Madoff- ever hear of don't put all your eggs in one basket?) And certainly I feel sorry somewhat for those who have lost their jobs, homes, and pay for their children's educations. But still- seen any bread lines recently? Is unemployment around 7 per cent or 20 per cent? Do you still have air conditioning, the internet, a cell phone, and a whole lot more stuff than people even a few decades ago did?
It's not all bad. But- here's where I see both a problem and an opportunity. Besides bankers behaving badly, where we are today is a natural result of many millions of people in the USA being scared out of their wits of a more active state role in the economy, including many people who voted against their economic self interest back in the bad old days, when tough talking conservatives promised better oversight of cultural and national security matters (though they failed largely here too). In exchange, Wall Street set national economic policy- and look where that got us.
In Europe by contrast, (outside of Britain and Iceland, both of which like the US overly deregulated) the mood is hardly one of panic. Sure, Europe's GDP is set to fall this year too and unemployment is set to rise. But if people can't afford a car anymore, public transport is there. If people lose their jobs, they still have health care and generous unemployment benefits. Education (though badly in need of an overhaul) is a tiny fraction of what it costs in the USA, even for Oxford, Cambridge, and the Grand Ecoles of France.
Since many economists think that a hefty fiscal stimulus is needed to bust out of this dead end (though I have my doubts about whether the proposals on offer so far are ambitious enough), President Obama now needs to put in place new government programs that will not only help spend our way as a nation out of the current recession, but by providing jobs in the education, environmental, national security, and health care sectors, strengthen the USA as a whole. If he is able to pull that off, and he has the political capital and skills to be able to do so, if he dares, then he will have ensured that, having surmounted the current crisis, we are in a better position to meet the next one, whencever it may come.