This morning in the New York Times Tyler Cowen has an op-ed on the tangled web of the housing crisis and the care that should be taken in untangling it:
The fundamental problem in the American economy is that, for years, people treated rising asset prices as a substitute for personal savings. The thinking went something like this: As long as your home’s value rose every year, you didn’t have to set aside so much from your paycheck. If your stocks went up, too, so much the better; don’t forget that the Dow Jones industrial average stood in the 800 range in 1982 and seemed to rise almost nonstop for many years.
What should policy makers do? One path that is likely to prove counterproductive is further fiscal stimulus in the form of tax rebates. Such stimulus can raise consumer spending and bolster the economy in the short run, but it works — if it works at all — only by pushing consumers to spend rather than to save. It merely postpones needed adjustments by providing a grab bag of goodies at exactly the wrong time.
Okay, you tell me. How are politicians in Washington likely to respond to a lengthy economic slowdown (note: not necessarily a turndown but undoubtedly a slowdown) and complaining constituents?
Have no fear: there is no problem so severe that it can’t be made worse by the Congress in a mad dash for reelection.