Robert Samuelson has a useful article in the Washington Post today that runs through three once pervasive opinions about the economy that we now know we’re terribly wrong.
- It’s just subprime so it won’t be that bad.
- Consumer spending will sustain economy.
- The global economy is decoupled from the US.
Prosperity, apparently forgiving of mistakes, bred the complacency that undid prosperity. On bad mortgages, losses could be recovered by selling the homes at higher values. Thus rationalized, bad loans were made. Some stocks might decline, but over time, most would rise. Risk seemed to recede, so investors and money managers undertook riskier strategies.
What will emerge from these shattered illusions? Will the crash stir social unrest, abroad if not here? Will Americans become so thrifty that they hamper recovery? Will economic nationalism surge? How will capitalism be reshaped? Much depends on whether the frantic policies to combat the recession succeed. Probably they will, but there are no guarantees. Our ignorance is humbling.
The question is, of course, how long will we remain humble? The ever-widening circle of bailouts is making the hubris that inflated the bubble that broke the world far less costly than it otherwise would be. At least, its making it less costy to the hubristic by spreading the costs to the humble. As the meek inherit the dearth of wealth, the bold learn that fortune does indeed favour them.