In sports, all great competitors know that they have a choice, even when confronted with daunting, insurmountable odds. They can lay down and let the larger, stronger opponent run up the score. Or they can find a way to compete, to make a game of it. A good loss is a dignified way to show what you are made of, that you have grit, attitude and brass, and you aren't to be trifled with, even in defeat.
Have a look at the following chart, as we take this discussion from sports to the real world of economic crisis and response.
The financial crisis delivered a significant blow to the economic well-being of the U. S,, indeed, the world. There were two responses to this challenge, one of a great competitor, and one of a pathetic loser. The response to the threat of overwhelming defeat is instructive, not only for its policy implications, but for how we as individuals should respond challenges that seem hopeless.
Consider the policy makers of the Federal Reserve, terrified as they were of the entire system collapsing. Regardless of your views of the impact of the Fed -- and I was an early critic -- one must grudgingly admire their determined and innovative responses. Consider not what they did but their attitude and creativity when confronted with what appeared to be an insurmountable challenge: They stepped up their game big time. If they were going to lose this battle, they were going to go down fighting.
They threw away the rule book. The new liquidity facilities were certainly never envisioned 100 years ago on Jekyll Island, where the Fed was born. But that didn't stop them.
There are no mercy rules in economics. The Fed knew this, and rather than let the clock run out -- a few decades of indecisive dithering probably would allow the excesses to be wrung out eventually -- took a bold stand.
I want to emphasize again that this isn't an endorsement of the actual policies. Rather, this is a ratification of the concept that we should never simply quit the game before it's over. Losing doesn’t have to equal failure.
Now let's turn the discussion to losing and failure, which means it's time to consider the collection of incompetents we call the U.S. Congress. Rarely has so much stupidity and malfeasance been assembled in a single room at one time.
When we look at the weak sectors of the economy, as noted by the New York Times, it should be obvious that our national economic wounds are mostly self-inflicted.
The drag from federal government usually is a simple and obvious fix. During a recession and recovery, spending should rise and the Fed should make credit less expensive.
Except in this cycle. Before you start telling me about beliefs and ideology and the deficit, all one needs to do is compare federal spending during the 2001 recession cycle, with a Republican controlling the White House and a split Congress, to the present cycle. Apparently, the importance of reducing deficits and having a smaller government only applies when the GOP doesn't control the White House.
Look also at state and local government , another huge drag on the economy. Block grants to the states could have helped to pay for police, emergency workers, teachers, road and bridge maintenance as they have in past recessions. But they weren’t, for partisan political reasons. The nation is worse off for it.
Business equipment investment and other forms of capital expenditures have been jump started with an accelerated depreciation tax allowances in past recessions. For some reason, this was allowed to lapse in 2013. This wasn't very smart; if anything, they should have been extended and made more aggressive.
The biggest drag of all has been the persistent weakness in residential real estate. The recent increases in home prices are the result of record-low mortgage rates and limited inventory, not an economic recovery. As we noted in ``The Best Housing Program You've Never Heard Of,'' there were some attempts to ameliorate this, but they amounted to too little too late.
The bottom line is that as a nation, and mainly because of Congress, we haven't risen to the challenges we face. There has been little intelligence, no creativity, negligible cooperation, and an epic failure of civic responsibility.
There is plenty of blame to spread around, but not in equal measures to both parties. The Democrats have been timid and short-sighted in their approach. The Republicans have been all of that, but much, much worse. No wonder independents are the fastest-growing political affiliation, especially among the young. Count me as one among them, a former liberal Republican from the Northeast, embarrassed by what happened to the party of Lincoln.
Congress is a national embarrassment. That sentence is one we all have believed at one time or another to be true. But the sentence I never imagined I would ever write is this: Thank goodness for the Federal Reserve.
To contact the author of this article: Barry Ritholtz at firstname.lastname@example.org.
To contact the editor responsible for this article: James Greiff at email@example.com.