Idiocracy as an American Form of Government, Round II
Indeed, All of a Sudden I Seem to Be More Optimistic than Anybody...

These Are Perhaps the Last Two Paragraphs Robert Barro Writes That I Will Ever Read...

Robert Barro:

The coming crises of governments - FT.com: The global crises of financial and housing markets are now being superseded by new crises of governments. The fiscal challenges for the weaker members of the eurozone are early warnings, as are analogous problems in American state governments weighed down by unfunded pension and healthcare liabilities. Without action, this new crisis of state competence could soon become just as damaging as its recent financial predecessor.

This week’s US debt deal, along with the prospect of debate on fiscal solutions in the run-up to the 2012 elections, provides some room for optimism. But America’s fiscal problems have deep roots. The recession of 2007-09 stemmed from the unprecedented bust in the housing market, driven by reduced lending standards and propelled by congressional pressures on private lenders and the reckless expansions of Fannie Mae and Freddie Mac…

A crisis produced by reckless expansions of government-guaranteed housing lending produces the S&L crisis of the early 1990s: a nasty little credit crunch, a small recession, a bill to the government, and a Resolution Trust Corporation--it does not produce a Little Depression.

You see, a crisis brought on by reckless expansions of government-guaranteed housing lending produces bad debts guaranteed by the government, and so the cycle of panic and asset deflation never has an opportunity to start. And that is indeed what we had in the early 1990s. Now we have something very different.

I know that blaming the current crisis on Fannie and Freddie is a Republican talking point. But Barro had always seemed to me to smart to believe Republican talking points and too honorable to regurgitate them.

Alas!

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