Thoughts on the Coming Tsunami

I am back from San Diego where I attended the American Association of Law Schools meeting, the annual meeting of the Federalist Society's Faculty Division (where I presented a work in progress) and an annual meeting of legal academics sponsored by the Lumen Christi Institute and Law Professors Christian Fellowship. Neat town, great weather, provocative meetings and good parties (one of the best being Marquette's offering of blue and gold drinks. It was martinis in New York and margaritas in San Diego.)

Beyond all that, I can't recall the last time that I could wake up in the morning and look out my window and see three aircraft carriers (although one is a fantastic museum that the Reddess and I explored.)

But we are back home with the father and mother (actually they are down south), sisters and brothers,son and daughter, grandsons, nieces and nephew, friends and dogs. Classes begin tomorrow.

And so political blogging should resume here.

I am told (I did not attend) that a session on the role of local governments in the economy included mention of our own experience with the Park East corridor. Discussion centered on the impact of regulatory requirements on the absence of progress.

But, as I return, I am struck by Scott Walker's refusal to put his hand out for federal money. Supporters of the idea of massive bailouts and aggressive "stimulus"
argue that we are in a "liquidity trap," i.e., individuals respond to an economic turndown by cutting back. Interest rates are already extremely low so cutting them further won't help. This is why recapitalizing banks won't work, they say. The banks are reluctant to lend to anyone and having more money will not change that.

Maybe. But isn't it important to know what caused the downturn. If the problem was too much credit inflating asset prices, will additional borrowing resolve the underlying problem ? Put another way, were the tech bust of 2000 and the real estate bust of today really part of the same problem?

Part of this comes to mind as I looked at San Diego real estate prices. (I'm not moving anywhere; it's just something I do when I am in another town for a few days.) I can't see how they can be sustained. There simply isn't enough income to support them. Sometimes a bubble has to burst.

My guess is that the economy will stay very sluggish for a while and then gradually improve without enormous stimulus. The pain associated with that may be necessary and it may be government's role to ameliorate it for those who are hurt the most. But I'm really afraid that this huge stimulus package, even if it makes things better in the short run, postpones the inevitable and exacerbates the root problem.