Wednesday, August 11, 2010

Gotta Water The Green Shoots

I don't think I have perfect predictive powers, and more than that my skepticism about the supposedly recovering economy mostly didn't come from my Ph.D in economics (plenty of people with those are idiots), but from some basic common sense combined with a bit of observation. It was common sense at the level which lead me to conclude years ago that we had a housing bubble because I knew that not that enough households have enough money to afford those homes. Some of my skepticism came from knowing what the data meant a bit, but mostly it was just that I never saw any evidence that a jobs recovery was coming, along with a greater appreciation for the problems of the housing/foreclosure markets and what they meant for the macroeconomy.

Once we overshot their "pessimistic" unemployment predictions the administration should have adjusted. Mostly they didn't. Obviously I think more and better stimulus (either fiscal or monetary) would have helped. Fixing the housing problem sensibly would have helped some too. The point isn't that there was some magic obvious solution, the point is that the problem was bigger than they imagined and, frankly, recovery noises from the administration started to remind me of Bush era noises about how things were always improving in Iraq.

While I think they should have actually tried to make the case, I'm sympathetic to the argument that a bigger stimulus couldn't have gotten through Congress. So what did they do wrong? They failed to actively support judicial bankruptcy for primary residence first mortgages (aka cramdown) and they totally screwed up HAMP. The latter was entirely under their control and the former would have stood some chance of passing if the White House had thrown its weight behind it. It didn't.