So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government.
Just to be clear: the economic situation remains terrible, indeed worse than almost anyone thought possible not long ago...
For all that, however, the latest flurry of economic reports suggests that the economy has backed up several paces from the edge of the abyss...
So what saved us from a full replay of the Great Depression? The answer, almost surely, lies in the very different role played by government...
Probably the most important aspect of the government’s role in this crisis isn’t what it has done, but what it hasn’t done: unlike the private sector, the federal government hasn’t slashed spending as its income has fallen...
In addition to having this “automatic” stabilizing effect, the government has stepped in to rescue the financial sector. You can argue (and I would) that the bailouts of financial firms could and should have been handled better, that taxpayers have paid too much and received too little. Yet it’s possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts things would have been much worse.
The point is that this time, unlike in the 1930s, the government didn’t take a hands-off attitude while much of the banking system collapsed. And that’s another reason we’re not living through Great Depression II.
Last and probably least, but by no means trivial, have been the deliberate efforts of the government to pump up the economy. From the beginning, I argued that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, was too small. Nonetheless, reasonable estimates suggest that around a million more Americans are working now than would have been employed without that plan — a number that will grow over time — and that the stimulus has played a significant role in pulling the economy out of its free fall.
All in all, then, the government has played a crucial stabilizing role in this economic crisis. Ronald Reagan was wrong: sometimes the private sector is the problem, and government is the solution.
And aren’t you glad that right now the government is being run by people who don’t hate government?
Yglesias points out that "“bailouts saved the economy” and “bailouts were structured so as to be very favorable to politically influential financiers” are not exclusive options."
I think that's right. The stimulus worked, but it could have worked better if it had been targeted solely at... stimulus, and less at, oh, say Goldman Sachs.
If there are any responsible Republicans left, please take lessons from this for the healthcare debate. You can't stop it, like you couldn't stop the stimulus. (In fact you shouldn't stop it, like you shouldn't have stopped the stimulus.) But if instead of fearmongering and holding your breath and throwing tantrums, you direct your opposition to things that actually should be opposed, you could affect positive change.
With regard to the stimulus, you could have held your fire, not smeared Obama as Stalin-incarnate, not ridiculed the very idea of stimulus, and instead insisted on making sure that the stimulus was as trim and directed as possible. Oh, you'll say you did argue against some of the waste and misdirected funds, and of course you did, but that was lost among the greater lunacy.
Now you have an opportunity to make sure that the health care plan does what it sets out to do rather than rewarding corporate interests at the expense of everybody else. But you've got to stop lying about everything, smearing Obama as a socialist, pretending that Obama's coming for grandma, insisting that government can never do good, and generally engaging in fearmongering. Instead, be a responsible opposition party. The Dems put forward a plan, respond with the same plan slightly improved. Stay on message. Say you support the plan, but you want to include tort reform. Or you want less money for X and more for Y. You can do that. If you put all your energy on making the plan better and none of it on insanity, you could not only cause a better health care plan, but take great strides in restoring a civil democracy.
Or you can scream "Socialism" and tear at your hair and have to live with whatever the Democrats manage to ram through without your help. Your choice.