Global Crisis Blog

Will America Bounce Back? And How Will We Know?

By Shlomo Maital

   America is still the world’s largest economy, more than twice as big as #2, China. But America no longer can play its traditional role – providing huge amounts of demand for other countries, to pull the world out of global recession.  America’s wagon itself is stuck in the mud and badly needs help. 

   President Obama’s former Council of Economic Advisors Chair Christina Romer,  writing in the Global New York Times (Int. Herald Tribune), gives us a clue to the vital question: Can America bounce back (again)?  How will we know when the ‘bounce’ begins?

   “In a paper I wrote many years ago,” she notes, “I found that …the stock market crash in 1929 did not destroy a particularly large amount of wealth or make people highly pessimistic.  Rather, it made companies and consumers very unsure about future income, and so led them to stop spending as they waited for more information.” 

   This is a perfect description of Japan, 1990-2010, where for two decades uncertainty shrouds everyone, extinguishing both consumer demand and business investment. Much of the uncertainty comes from incompetent, unstable political leadership and leaders who have no vision whatsoever, nor provide any hope to ordinary people.

    And it is a perfect description of the U.S., 2008-2010, where political deadlock between Republicans and Democrats, vengeance-driven Republicans who would rather sink the U.S. economy to defeat Obama in 2012 than help the economy and, heaven forbid, re-elect him (viz. Senator Mitch McConnell), and a weak and weakened Obama who has been unable to get control of the old-boy-club in Washington, have conspired to mount an enormous question mark over the lives of ordinary Americans.

    America will bounce back. Out of this chaos will emerge a leader, doubtless a rather unlikely one, who speaks words ordinary people understand and who shows them the way forward, involving present sacrifice for future gain.  Don’t rely on economists or number-crunching to guide you. This crisis is NOT about numbers.  It is not about interest-rate basis points or GDP growth points, it is about hope. People work hard, start businesses, invest, even spend, when they have hope. 

    In Franklin Delano Roosevelt’s First Inaugural Address, in Jan. 1933, the new U.S. President, who inherited a mess far worse than that Obama did, said, “the only thing we have to fear is fear itself.”   That captures the problem in a nutshell.  Once ordinary Americans overcome their fear of the future, and are given good reasons to overcome it, once their fear turns into hope, the crisis will be over and America will bounce back, even though the road will be long and hard.