A different recession is on the way -- the old remedies won't workthis time

In a normal recession, the to-do list is clear. Copies of Keynes are

dusted off, the Fed lowers interest rates, the president and Congress

cut taxes and hike spending. In time, purchasing, production and loans

perk up, and Keynes is placed back on the shelf. No larger alterations

to the economy are made, because our economy, but for the occasional

bump in the road, is fundamentally sound.

This has been the drill in every recession since World War II.

Republicans and Democrats argue over whose taxes should be cut the

most and which projects should be funded, but, under public pressure

to do something, they usually find some mutually acceptable midpoint

and enact a stimulus package. Even in today's hyperpartisan

Washington, the odds still favor such a deal.

This time, though, don't expect that to be the end of the story --

because the coming recession will not be normal, and our economy is

not fundamentally sound. This time around, the nation will have to

craft new versions of some of the reforms that Franklin Roosevelt

created to steer the nation out of the Great Depression -- not because

anything like a major depression looms but because we face an economy

that's been warped by two developments we've not seen since FDR's

time.

The first of these is the stagnation of ordinary Americans' incomes, a

phenomenon that began back in the 1970s and that American families

have offset by having both spouses work and by drawing on the rising

value of their homes. With housing values toppling, no more spouses to

send into the workplace, and prices of gas, college and health care

continuing to rise, consumers are played out. December was the

cruelest month that American retailers have seen in many years, and,

as Michael Barbaro and Louis Uchitelle reported in Monday's New York

Times, delinquency rates on credit cards, auto loans and mortgages

have all been rising steeply for the past year.

What's alarming is that this slump in purchasing power doesn't appear

to be merely cyclical. Wages have been flat-lining for a long time

now, the housing bubble isn't going to be reinflated anytime soon, and

the upward pressure on oil prices is only going to mount. As in

Roosevelt's time, we need a policy that boosts incomes and finds new

solutions for our energy needs.

FDR's long-term income remedies included Social Security, the Wagner

Act (which made it possible for many workers to join unions) and

public works projects -- including a massive electrification of rural

America. A comparable set of solutions today would include the passage

of the Employee Free Choice Act, which would enable workers in

nonexportable service-sector jobs to unionize without fear of being

fired. It would include a massive, federally financed program to

retrofit America, creating several million "green jobs" in the

process.

On these issues, there's a clear difference between the two parties.

Barack Obama, Hillary Clinton, John Edwards and the congressional

Democrats favor these measures; the Republicans oppose them (though

John McCain at least has begun speaking about creating green jobs).

What Republicans favor is simply more tax cuts, which will do nothing

to address our deeper problems of income distribution and energy

dependence.

The second way in which the current downturn echoes the Depression is

the role played by our deregulated financial sector. Now, as then, the

financial foundations of our leading banks and other lending

institutions have turned out to be made of mush. Now, as then, this

news has come as an appalling surprise not just to consumers but to

many of the banks themselves. Now, as then, the banks created such

complex and deliberately opaque financial vehicles -- all devised to

make them a buck every time they swapped some paper -- that they long

ago lost track of the paper's true value.

In his time, Roosevelt, through the Securities and Exchange Act and

other legislation, compelled banks to be both more prudent and

transparent. Over the past 30 years, however, Wall Street has created

a host of new, unregulated institutions (such as private equity

companies) and devices (such as the bundled, and bungled, resale of

mortgages into ever-larger investment pools). Now it's time to enforce

some transparency and prudence regarding financial institutions that

have been gambling with other people's money and lives.

When it comes to reining in Wall Street, however, the Democrats have

been AWOL almost as much as the Republicans have been -- not least

because their presidential candidates get so much money from Wall

Street. By refusing to take on the Street, however, they forfeit what

could be a potent issue this fall and lay the groundwork for yet

another recession.

http://www.washingtonpost.com/wp-dyn/content/article/2008/01/15/AR2008011502861.html?hpid=opinionsbox1

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According to Meyerson, we will need a politically-adept visionary on

the order of Roosevelt to get us turned around. There's only one

person of that caliber and Big Al Gore is not running.