It comes as no surprise, of course, that as we actively enter the election season there is bound to be a growing number of "explanations" for the current economic conditions. Thus we have Gingrich calling it "Obama's depression" and White House spokespeople passing up no opportunity to remind voters they "inherited" the economic mess. So what is a conscientious citizen to do?
Well, we could do worse than start with Robert Shiller's essay in today's New York Times. As Professor Shiller says it,
THE origins of the current economic crisis can be traced to a particular kind of social epidemic: a speculative bubble that generated pervasive optimism and complacency. That epidemic has run its course. But we are now living with the malaise it caused.
So, who do we blame for the "social epidemic?" Now, I'm certainly not saying that there were no culprits or that nobody was (and is) to blame. Some very good books and papers have been written that do an admirable job of exploring the causes of the economic recession. Again, Professor Shiller.
Consider this: Home prices rose nearly 10 percent a year on average in the United States from 1997 to 2006, long enough for many people to become accustomed to the pace and to view it as normal. The conventional 30-year fixed mortgage rate averaged 6.8 percent over those years, far below the appreciation rate on housing, so even if you had a substantial mortgage, you were becoming wealthier by the day, at least on paper. People who owned a home over that period had reason to feel pretty well off and proud of their investment acumen. That fed a contagion of optimism and helped to drive the speculative bubble, propelling the economy and the stock market in a feedback loop that repeated year after year.
So, maybe its time we expected our elected officials and potential presidential candidates to put forth a coherent story of "where we go from here" instead of simply playing "sound bite gottcha" with the news cycle. One can hope.
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