A particularly potent myth has been circulating for about a decade. It is that the world's economic problems began with the fall of the World Trade Center. But, as Jennifer Wells writes in this morning's Toronto Star, it was "greed, not Osama" which wrecked world markets. The fuse which blew the whole edifice up was easy money:
It was a phantom prosperity, as was painfully learned. In his 2007 biography, [Alan] Greenspan too politely acknowledged the role that the “loosening” of mortgage credit terms for subprime borrowers played in heightening financial risk. “Vaporization,” would have been a more apt term. Within the year, Lehman Brothers would declare bankruptcy, the era of bailouts arrived (again), and we all became comfortable with the lexicon. (The Troubled Asset Relief Program would forevermore be known as TARP, and even the innocent were initiated in the ways of collateralized debt obligations.)
And we have yet to recover. The Star's David Olive is an optimist by nature. He too writes today that:
Just letting the fiscally ruinous U.S. tax cuts of 2001 and 2003 lapse would scare up $1 trillion or so, enough to cover two thirds of the deficit. And the long-term threat to the solvency of Social Security and Medicare? America’s population, in contrast with expected declines in most advanced economies, is forecast to surge 41 per cent by mid-century to 438 million. That’s 127 million new taxpaying Americans to the rescue.
Unfortunately, that will not happen anytime soon. The American Tea Party is committed to no tax increases -- even if that means going back to the tax rates of ten years ago. And they maintain that position, as Standard and Poors declares that it was their intransigence which was primarily responsible for S and P's decision to downgrade the U.S. government's credit rating. Consider this response from would be president Michelle Bachmann:
It isn't true that the government would default on its debt," Bachmann told CBS' Bob Schieffer. "Because, very simply, the Treasury Secretary can pay the interest on the debt first, and then, from there, we have to just prioritize our spending....I have no intention of voting to raise the debt ceiling."
We are where we are because those who brought the economy down refuse to acknowledge their responsibility for the mess they created. And they refuse to acknowledge that their woodenheadedness keeps the economy from recovering.
David Olive may be right that this too shall pass. The problem is that it will take a long time to pass.