Thoughts on the Depression

Being retired, I don't have to worry about analyzing anything in depth, justifying my conclusions, being consistent, or even making sense. So I don't hesitate to offer my "thoughts" on the current depression:

• We're in some serious sh*t here. Not just quantitatively different from other downturns over the past 30 or 40 or 50 years that I used to look at back when I was doing economics, but also qualitatively. Enormous job losses. Enormous losses of wealth in the financial markets and in housing. The financial system unresponsive to Federal Reserve policies. Whole industries (e.g., construction, autos) on the brink of collapse.
  
• The Congressional Budget Office forecasts a 2.2-percent decline in economic activity this year (which might not sound like a lot but which is much the largest decline since at least 1950) and only a small increase the next year. After that? Four years of above average growth. No kidding. Four years of moderately strong growth. Those people are a lot smarter than me, but I think they're dreaming.
  
• There's a lot of fuss about the content of President Obama's stimulus package, with the libs saying without any qualification that only spending programs will help and the conservatives saying without any qualification that only tax cuts will help. Neither side shows the appropriate degree of humility; there's way more uncertainty about the effects of these policies than either side is willing to admit. My guess is that spending and taxes will both help, that we don't know enough to say with any certainty that one is better than the other, and that if we need a combination of both to get quick, broad congressional support for the program, fine. (All tax cuts are not created equal. Tax cuts, if any, should be targeted at lower and lower-middle income taxpayers.)
• Whatever the size of the stimulus package, I suspect it's going to be too small to move the economy very much. The economy is just HUGE. It withstands earthquakes, hurricanes, terrorist attacks, floods, elective wars, etc. without blinking. To combat this depression we need something HUGE, something like the equivalent of World War II. My suggestion: Declare war on oil. A week from tomorrow, the new president should say "Almost half a century ago, John Kennedy committed this nation to putting a man on the moon within 10 years. Today I announce my commitment to free the nation from any reliance on foreign oil -- zero oil imports -- by 2019. To that end I call on our scientists and engineers, our inventors and our builders, our workers and our business leaders to develop and implement solar energy solutions that will meet this goal. It will not be easy, but the resources of the Federal science establishment will be at your disposal. It will not be cheap, but the Federal Treasury will be eager to assist you."

Enough. I'm going to bed.