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Zachary Karabell Headshot

Stimulating

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After months of confusion, we are about to close a painful chapter in the economic crisis of 2008-2009. With the imminent passage of the $800 billion stimulus package combined with the roll-out of the next stages of the government-orchestrated bank bailout and recapitalization, we are about to end the talking phase and enter the doing phase. While no one can say for sure whether these plans will work, it's certain that they will have an effect.

Many will debate the details endlessly, whether or not there is the right mix of spending and tax cuts, whether the plan to sequester and purchase "toxic assets" is aggressive enough and if the overall approach will serve to instill a modicum of confidence among hundreds of millions of consumers and hundreds of thousands of businesses that have little. But while the devil is sometimes in the details, this time perhaps not.

We will never know if another plan, a different plan would work better or whether this plan in its details will be heralded as the key to a recovery or excoriated as the cause of a depression. We will never have an opportunity to play out different scenarios in some massive game-theory experiment. We will only have this particular plan and these particular actions, in conjunction with the stimulus spending of the Chinese government ($600 billion or more), the French, the British, the Japanese, the South Koreans, and dozens of others amounting to hundreds of billions more, as well as rate cuts by central banks around the world, all ad hoc, but all amounting to massive government spending and globally low interest rates that in theory make the cost of capital cheap even as banks make it scarce.

History will one day be written of today, though we don't yet know if this is a middle act or a denouement. Historians like commentators today will attempt to weave a cause-and-effect story of what happened and why, but much as we now endlessly debate the New Deal, they wont agree about what caused what, about what worked and what did not.

But this much is certain: we are now cleaning up a mess, and even if we inadvertently add to it, we are no longer feeding it. The massive leverage generation that took place between 2005 and 2007 has been halted. The layering of debt onto the shakiest flimsiest pillar of the U.S. economy is no more. While debt will rise as a result of spending, it will be based on the entire system as collateral, and not a subdivision in Henderson, Nevada. That at least is a move forward we can celebrate.

So let us pause for a moment and be thankful that the next stage is at hand. As muddled as this one may be -- and all major measures taken in crisis usually are -- it is born of the drive to reconstruct and not profiteer, and that alone is progress to applaud.