Throughout the week, Clay Risen, the managing editor of Democracy, will be covering economic developments for us on The Plank.
There are a lot of people putting a lot of thought into the last week's worth of business news. But if there's anything like a conventional wisdom to be drawn, it's this: 1) We're definitely in recession territory--given the vagaries of spot data, we don't know if we're just before one, in the middle, or at the tail end--and it's probably going to be worse than the last. 2) So far the worst of the damage has been limited to Wall Street banks and high-risk mortgages. 3) A combination of luck and timely Fed action has prevented things from getting out of hand, but as the brokers all say, past performance is no guarantee of future success. 4) We kind of had all this coming, and since so far things aren't all that bad, it might not be a terrible idea to let the chips fall where they may, with the federal government standing by to ease the worst of it and make sure the damage doesn't spread outward. That means aid to responsible homeowners who somehow got trapped in bad mortgages, combined with new regulations on mortgage lenders and brokers. It also means having enough foresight to intervene selectively, but not capriciously, on Wall Street; the risk of creating moral hazards is real, but so is a massive banking implosion.
What this all points to is a new balance between facilitating responsible risk-taking and government activism to limit abuse and offer a corrective hand when absolutely necessary. Think of it like medicine: There's no cure to the common cold, and an occasional cold is probably a good thing, if only as an indicator that our body is worn down and needs rest. But once we have a cold, smart people take the right steps to prevent it from worsening into a sinus infection or what have you. The government shouldn't be there to prevent recessions; those are normal, healthy parts of the business cycle, and in any case it probably couldn't if it tried. But it can help the people who are hurt by recessions, and when led by smart people, it has the capacity to prevent disorderly crunches that could lead to much worse.