Stabilizing into a crisis
By Ezra Klein,
Washington likes to talk about the economy in terms of things it can control. Spending and deficits. Stimulus. Policy uncertainty.
But the Dow Jones industrial average isn’t diving because spending has risen, deficits have grown or stimulus policy has changed. It’s diving because of forces Washington can’t control, and in many cases, doesn’t understand very well. How many members of Congress do you think could give a coherent account of what has happened to oil or steel prices over the past three years? Or what’s happening in the euro zone? Or to the yuan?
A dramatic gap has opened between the economy as Washington sees it — and wants to intervene in it — and the economy that exists. Whatever weak recovery we might have hoped for is being hindered by global commodity prices, consumer deleveraging, fears of flagging demand in emerging markets, earthquakes in Asia and much more. Globally, it’s been an almost uninterrupted run of crises and bad luck. Meanwhile, Washington just spent two months arguing over whether it would pay its bills or spark an unnecessary financial crisis.
Congress resolved that question this week, and the markets are tanking. Which suggests that Washington is asking itself the wrong question.
The right question is simple enough: Where will the recovery come from? The problem is that no one has an answer. And as one hopeful hypothesis after another is dashed, the markets are beginning to panic.
It won’t come from the United States. Our recovery has slowed, and updates to the Commerce Department’s growth figures have shown that the hole we’re in is significantly deeper than we realized. Thursday’s news only underscored that conclusion, as the early signs suggest that Friday’s job numbers report will be disappointing.
It won’t come from Europe or Japan. The debt crises in Greece, Spain, Portugal and Italy have quieted any conversation about recovery and raised the question of whether the euro zone can survive. And Japan is still trying to rebuild after the horrific earthquake and tsunami that ripped across its coastline back in March.
For some time, the hope was that recovery could come from the world’s emerging economies, driven by China. But after years in which the Asian giant managed to defy global economic trends and post one incredible growth number after the other, the Chinese government is admitting that the economy has overheated and it needs to begin tapping the brakes. That doesn’t simply suggest the emerging economies won’t drive a global recovery, it also raises a new source of concern: What if the Chinese government fails to engineer a soft landing for its economy?
The impoverished and reckless economic policy conversation in Washington isn’t helping to cope with these trends, but even if we got our act together, the reality is that we have limited influence over what happens in China or in the euro zone and Japan. And it’s not even clear how much an ideal policy response would do to speed America’s recovery.
As bad as the daily data were two years ago, it was easier to tell a story of recovery. The full scope and stickiness of the financial crisis wasn’t yet visible, and the disappointments of the aftermath hadn’t yet sunk in.
Today there’s more stability, but we seem to have stabilized into an era of high unemployment, low growth and endless risk. Rather than recovering from the crisis, it is almost as if we have settled into it. And no one quite knows how we’re going to escape.
For full coverage of the financial markets and the global economy, visit Post Business.