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The Washington Independent

Bubbles, Recessions and a Tough Year Ahead

We ran a piece today touching on the difficulty of fixing an economy broken by the bursting of something as large as the recent housing bubble. That is, if the

Thomas Dixon
Last updated: Jul 31, 2020 | Feb 04, 2009

We ran a piece today touching on the difficulty of fixing an economy broken by the bursting of something as large as the recent housing bubble. That is, if the inflated housing market allowed millions of Americans to leverage equity to buy things they couldn’t afford — and if millions of jobs were created to support that level of (unsustainable) spending — what force of nature or government could act to replace that economic engine?

Certainly not a $900 billion stimulus bill, which is just what some of the country’s top economists said in recent days. Indeed, experts are nearly universal in their predictions that the economy in 2009 will continue to tank — stimulus bill or none. Instead, they’re promoting an enormous spending package as a way to prevent the trough from bottoming deeper than it’s headed.

A sampling:

Alice M. Rivlin, former head of the Congressional Budget Office: “The stimulus package is certainly not nearly big enough to get back to the bubble economy. With any luck, it will mitigate the job loss and make the recession less bad than it would otherwise be.”

Heidi Shierholz, economist at the Economic Policy Institute: “No one ever thought this would bring us back to the strong labor market of the late ’90s…There’s this incredible hope that [the stimulus] is going to solve things right away, and it’s just not.”

Chad Stone, chief economist at the Center on Budget and Policy Priorities: “The goal is to get the economy back to a higher level of employment, [but] everyone expects unemployment to rise in 2009.”

Practically, then, the stimulus bill is intended to act as a sort-of crutch, allowing the injured economy to heal itself more quickly. Politically, though, you can already guess the messaging of GOP strategists as the 2010 mid-term elections get closer: After all, it was the Republicans who controlled Congress and the White House in 2006, when home values were at their peak and unemployment was 4.4 percent (versus 7.2 percent now). And it’s Republicans who have proved more than willing to let the Democrats take responsibility for the stimulus package (The House vote, remember, attracted precisely zero Republicans).

Will voters remember that the bubble economy of 2006 was an unsustainable phenomenon?

As Stone of CBPP said: “If, in 2010, there are no signs of improvement, then there will be trouble.”

Thomas Dixon | He creates the ideal marketing experience by connecting online brands with their target audiences. He recently completed a research paper on consumer conversion and took part in a community project on SEO optimization. Thomas is working on his Bachelor of Arts in Communications and plans to intern in an online marketing department soon.


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