October 30, 2008
Economics Department
More On My Theory of Our Current Economic Crisis
A few months ago, John McCain was lambasted by some of the punditry for his commenting that the fundamentals of our economy are strong. I never had a problem with what he said. The fundamentals of our economy were strong: Unenployment wasn't very high by historic standards, our farms and factories and business offices were still well-maintained and up-to-date, our workforce was well trained, our productivity continued to increase, as did our GDP. There were problems with high gas prices and the sub-prime loan market, but everything else was fine.
Then Treasury Secretary Paulson and a lot of other politicians begain to say some very frightening things, and as I noted, that could have a lot of unpleasant consequences, including a lot of tight regulation and government meddling in the market. Suddenly the DOW went crazy, banks stopped making loans, and consumers stopped spending so much. Now, as I also noted, everyone is taking a wait-and-see attitude---hoping the craziness will end soon---and that's going to hurt us.
The latest numbers show that our economy started to faulter in the third quarter, and as I understand it, much of the trouble came in the latter half of September, right after Paulson started screaming like a frightened child.
Here's a great interview of UCLA economist Lee E. Ohanian saying pretty much what I've been saying, only he really knows what he's talking about:
I'm not just making this stuff up.
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