Could The Recession Have Been Prevented?

The 2008 recession guarantees many months of job losses that will boost foreclosures and feed the credit crisis. But if fiscal stimulus had reached consumers quickly, it would have forestalled a recession, helping to stabilize the housing market. Such a soft landing would have bought some breathing room in which to resolve the credit crisis until the lagged effect of monetary policy kicked in.

There is a raging debate about how the economy got into recession, and who is to blame. Many have concluded that the housing and credit bubbles guaranteed recession. But because this debate will influence policy for the next economic cycle, the right lessons must be learned from this series of unfortunate events.

An essential point is being overlooked--that this recession was actually avoidable as recently as several weeks ago. How could that be?

Read the whole story here.

Comments

[Cathexis]

The recession might have been prevented, or at least mitigated. But action would have needed to have been taken back in the early 2000s.

First, let me say this is not a "typical recession" where low interest rates are a panacea. Many of our current problems were *caused* by low interest rates that were kept too low for too long, resulting in a housing bubble. The foolish tax deferments (I won't call them cuts) didn't help.

In many ways, we never really got out of the 2001 recession -- at least, not as a country.

And the authors' implication that the recession was caused mainly by "pessimistic talk" makes me question whether they really have a grasp on the factors that did lead us to where we are.

How could we have avoided it?

* Raised interest rates back when the old recession was starting to lift. If the "recovery" was too fragile to survive interest rates going to normal, it wasn't a real recovery.

* Stop wholesale business deregulation. It only allowed excesses and abuses. (Personally, I won't buy ground beef when Republicans are in office -- I won't eat what they will allow in.)

* Deal with the hemorrhaging of US jobs. A populace without incomes can't spend.

* Avoid unneeded wars.

* Invest in some national infrastructure -- road/bridge repair, for example. Water pipes and sewer systems. Creates jobs, improves the country.

* IF we're to give tax cuts, do so where it will benefit: The bottom

[fellows]

If you had spent as much time reading the article as you spent writing your comment, you might have actually understood what the authors were saying.

Contrary to what you think they said, they didn"t say (or imply) that the recession was caused by "pessimistic talk." If you actually followed their line of logic (which you apparently didn"t have time for), you"d see that they are saying that premature recession forecasts (the economy actually expanded in 2006 and 2007 despite all the pessimism) led to a whittling down of inventories that created a unique opportunity for prompt stimulus to head off recession.

So, you"re right " in the sense that it isn"t a typical recession where there"s no chance for quick stimulus to avert recession.

But as I read it, the authors" main point, which seems to have escaped you entirely, is that despite all the "sins" from earlier in the decade that you mention, it was still possible to avert recession this year, if the stimulus had not been so idiotically TIMED to reach consumers months after the recession had already begun.

Doesn"t mean earlier economic actions wouldn"t have had consequences, but not in the form of a 2008 recession.

[FreedomCorpse]

It could have been avoided if this country had a representative government but we don't.

[Moarku]

Whoops, I meant to say GRAY'S Papaya.

[280park]

Agreed... Now I want a hot dog!

[Moarku]

I just have to give props for the use of Grey's Papaya in the picture. Best hot dogs in NYC. :)

[dbryant]

It"s clear from the previous comments that most readers can"t deal with an objective, non-polarizing view " all bad things must be traced back to what Bush/Republicans or the Fed have done over seven years, or to how Congress has messed up since the 2006 election. What this article is pointing out may be too simple or too subtle or just too non-partisan for most people to appreciate: namely, that the TIMING of policy is important " that even after all those screwups, this year"s bipartisan tax rebates could have averted THIS recession (not all recessions for all time) if only they had found a way to send the money out in February! That"s all, folks. Sure, it wouldn"t be a silver bullet for all of the economy"s problems, but we wouldn"t be losing a million jobs this year, and fewer people would lose their homes. You might feel differently if it was YOUR job or home at stake!

[280park]

WHY isn't this a bigger issue?!?! Nobody seems to be asking WHY it takes so long for Washington to act. The Fed had to know the economy was tanking last fall, but they only get serious this year? And Washington makes a big photo-op out of emergency stimulus in Jan. only to put the execution of the plan on the (summer) back burner? Since when does the world stop turning so that we can take our time dealing with problems?

We deserve what we get if the best we can do is then twiddle our thumbs around a "debate" about what was done wrong four or five years ago. That's lame, and a convenient way of absolving ourselves (or our current representatives) of responsibility.

p.s. I can't believe Forbes ran this article as it is harsh on some of their traditional peeps.

[javaman]

yes, if lame ass greenspan the repuke sycophant was fired 10 years ago.

[speakeasy]

This is typical republican kool-aid supply side economic talking points. Hale "Bonndad" Stewart, a little help here...

[jenchil]

You"re confused. The article goes after two Bush appointees, Bernanke and Paulson, so it doesn"t sound like "typical republican talking points." Of course, Pelosi is also criticized.

As for the "supply-side" jab, I don"t see it. I understand that supply side economics is about cutting taxes for the wealthy in order to grow the economy. The article just points out that the rebate checks alone would have averted recession IF they"d been delivered quickly.

What"s your ideological problem with that?

[Rog49Thomas]

Of course the recession could have been prevented.

But that would have required a theological revolution as profound as the Reformation to abandon two flawed doctrines:

(1) Markets know best and self regulate.

(2) Govt intervention (rules and regulations) are always ipso facto wrong as they distort the invisible hand of the market (See Delusion #1 above).

[dadw5boys]

Don't forget tax cuts raise more funds. lol

[mamacat]

The authors of the article suggest that earlier interest rate cuts might have forestalled a downturn in the mortgage area, but mention nothing about the need for oversight in mortgage and banking practices to prevent fraud and the collapse of the worldwide banking structure.

The authors talk about a recently growing economy, but fail to mention that this is the first economy that was capable of heating up while leaving the living standards of everyone below the level of CEOs stagnant, or in retreat.

There are some very serious problems in the U.S. economy, and most of them started with the Republican rise to power in the federal government.

[nanny138]

Isn't the point that timing of short term policy moves are critical? It's not that bad decisions taken years ago don't have an effect, but that bad decisions taken earlier this year are just as culpable and there's a bait and switch under way. If we simply focus on what happened years ago (which was bad) we let everyone steering the ship this year off the hook. It's much better to try and fix problems without the roof on fire, no? I think the picture painted of prescribing CPR for the consumer and then waiting months sums up the quality of our economic policy.

[TimmySlagle]

What do you think might have caused a recession?

Well we had six years of fairly strong growth between 2001 and 2007. I wonder what happened in 2007?

Oh yeah, the New Congress took over.

[fourex]

I believe you meant to say six years of irresponsible debt.

[TimmySlagle]

Actually, the irresponsible debt has been going on since the Roosevelt administration. Government took over a lot of functions it was never intended to do.

The majority of the debt is hidden in the unfunded Social Security "pension fund."

[dadw5boys]

Six years of strong growth??????
Where?
Oh yeah the military weapons industry!!!
The subprime mortage market!!!!!!!
Oh sorry the subprime was only bubbling then the bubbles are bursting now all over us.

[TimmySlagle]

Actually, the economy did really well after the GOP took over Congress in 1994. Had one of the greatest Bull Runs in History, and we even posted a Federal budget surplus, before the recession of 2000.

[HouseOfRoberts]

"Oh yeah, the New Congress took over."

And affected the economy in what way, Timmy? How did the Congress cause the recession? This should be a scream.

[TimmySlagle]

"How did the Congress cause the recession?"

By chasing capital out of the market. Right now, with all the talk about getting even with corporations, capping carbon emissions, seizing "excess" profits, and doubling the capital gains tax, investors are wary about putting any money into the US.

It makes a lot more sense to invest in places like China; where taxes are reasonable, labor is market priced, regulations are sparse, and people recognize Climate Change for the fraud it really is.

Hence, is the wise investor is avoiding the American market.

[Podewumun]

Eradicate the human race. No more problems.

[TimmySlagle]

You first.

[TooLooze]

Typical for business media like Forbes and Wall Street Journal. Had the lending and appraisal industries been regulated other than internally, had there not been a war, had we not given tax breaks for outsourcing jobs and manufacturing.....we wouldn't be in the mess we are in.

[jnratliff]

Typical for business media like Forbes and Wall Street Journal. Had the lending and appraisal industries been regulated other than internally, had there not been a war, had we not given tax breaks for outsourcing jobs and manufacturing.....we wouldn't be in the mess we are in.
Yes all of this could have been avoided seven years ago, We should have risen and burned the supreme court to the ground for appointing the bush crime family. Then none of this would have happened!

[dadw5boys]

Qestion is why are not a few appraisers in jail for over valuing property so larger loans could be made.
The is COLLUSION TO DEFRAUD if the lender gave the appraiser bonuses to mark up the vlaues so the lender could get high percentages where the loans were sold!!!!

[rivrgrrl]

You've hit the nail on the head. All of this could have been avoided, starting seven plus years ago.

[sugarsugar]

I'm amused that even after three years of media crazy adults screaming that "the sky is falling" like spoiled brats a recession could have been averted. Too bad it seems, as usual, everybody was out to lunch. These guys seem to call it like it is; finally pointing out that a stimulus package enacted in feb does very little if it doesn't hit until summer. I mean really, what's the point?

But enough about recession, if we're here then we're here. I'm curious to know, like everyone else I'm sure... what happens next?

[TMAN]

They called it a Depression in the 30's and we're closer than you think.
Same attitudes from the same party.
Those who don't know their history are doomed to repeat it.
That's why Nov. is so critical.

[ajax2]

Yes, easy monetary policy along with huge debt is the primary culprit. The last chance to stop the debacle was the 2004 presidential election. Voting GW Bush back into office was a vote for devalued currency, (see Treasury Sec. Snow 11/02), and more debt.