Recession: Let’s Declare Victory and Go Home

Maybe it’s time to declare victory and withdraw.  That was the joke when the United States was mired in the Vietnam War, but it might be a good strategy for dealing with this recession.

We are about the enter the third month of the Obama administration, and we’re still in recession.  When I say that in speeches, people laugh.  They know that the economy won’t turn around in a couple of months.  The people who don’t understand this are the politicians and op-ed writers.  They continue to tell us that the stimulus policy hasn’t worked, despite the fact that it has not yet begun.  They tell us that monetary policy is not working, even though the dean of monetary policy studies, Milton Friedman, said that the time lags are “long and variable.”  Comments about bank lending usually ignore the typical recessionary pattern, which is falling loan demand during recessions.

There’s a plausible case for believing that the economy will soon hit bottom, soon being within the next three to six months.  Thereafter we’ll have a mild expansion.  This forecast is so plausible that it constitutes the average of professional forecasters.  Yet it seems wildly optimistic to the man and woman on the street.  We get so much bad news that no one believes it will ever turn positive.  As I write this, I’m on a snowy mountain in Montana, where morning temperatures are below zero, and it’s hard to believe that in a few months the snow will be melted, golfers will fill the valley, and sailors will cover the lake.

There’s a school of thought that says we can talk ourselves into recession.  My friend Jim Blasingame, the Small Business Advocate, has advanced that notion and I’ve told him he was wrong.  I’m starting to think, though, that he’s right this time round.  Continued debate over stimulus and bailouts keeps the economy in the news.  Everyday people tell me that this will be a long slump.  What’s the basis for their conclusion?  They keep hearing bad news day after day, week after week, month after month

There’s no economic model I’m aware of that allows for a sudden turnaround in the economy.  There are time lags all over the place.  If we’ve conducted perfect economic policy since last summer, we’ll still have to wait for those time lags.  However, the basis for believing that conditions will never change is equally weak.

In the meantime, let’s stop listening to politicians talk about “jump starting the economy,” a result than cannot be achieved by anybody.

President Obama should give the following speech:

My fellow Americans.  We have taken bold action.  We have passed major economic stimulus bills.  We have constructed new financial market programs.  The Federal Reserve has injected new reserves into the banking system.  These actions will work, but they will take time.  We are now in the waiting stage.

While we wait for our policy actions to end the recession, my administration will turn to the other urgent issues that the country faces: education reform, environmental policy, and steroids in baseball.  Please join me in these debates.