Those of us who recall the old Warner cartoons are familiar with it. In hot pursuit of his elusive Roadrunner prey, the feckless Coyote hurtles headlong over a cliff. For a few moments he hangs suspended in midair, apparently even gaining a little traction before he plunges to the ground.
I’m not the first person to see the analogy between our current economic situation and the Wile E. Coyote effect. For example, the popular econblogger, nakedcapitalism, pointed it out a few weeks ago. I’ve seen posts from various bloggers going back a year or more to the same effect. However, I do think that I’m the first person to note that the metaphor goes even farther than that to the solutions that are being tried.
The first approach, the Troubled Assets Relief Program (TARP) put in place by the Bush Administration, was an attempt to harden the air. That’s what trying to restore already insolvent banks has been. As desireable as it might be to breathe new life back into the zombies, I’m afraid it is just as futile as tyring to harden the air to regain a firm footing.
Our most recent attempt is the stimulus package which President Obama has just signed into law. Continuing with our metaphor I think that this is an attempt to raise the ground, to build up the underpinnings of the economy to meet the Coyote’s feet before he falls, and it’s going to be as futile as the previous attempts have been.
The problem they’ll encounter is that the growth of the last few years has been ephemeral, based on borrowing and asset inflation. Trying to keep that afloat is vain. What we’re going to see for the foreseeable future is what the Microsoft executives have benignly referred to as a reduced level of economic activity.
What we need is ten years (or more) of investment, risk, and hard work, making things, inventing things, and providing services in proportion to historic norms rather than a few years of investment done on our behalf by the federal government and crammed into a year or two. However enticing it might be there is no path to wealth through borrowing. At least not for most of us.
In the near term I’m afraid that the most we can hope for is to soften the fall of the most vulnerable and most innocent of our fellow citizens. I don’t see any way of holding up the most highly-leveraged institutions and the sectors of the economy, like home construction and financial services, which were built on air.