Where's the Fat Lady?

The economy downshifted rather dramatically in September-October 2008 -- "fell off a cliff", in Calculated Risk's version of rosy-fingered dawn. An inventory adjustment followed, which gave everyone a big shock -- a sense of freefall, as trade seemed to just stop, as inventories were run down to the new level of economic activity. The inventory adjustment is over. The financial panic appears to be over.

Now, we're stuck at the new, lower level of economic activity.

Politically, the relief from panic feels like we're returning to "normal" whatever "normal" is. (Hint: it's a lower level of economic activity, characterized by persistent high unemployment. With an end to the panic, there's a sense that the Administration has muddled through.

Matthew Yglesias » Dinner With Prize-Winning Critics: "The administration has hit on what it thinks is a reasonable satisficing solution and they believe the economy is starting to turn around. Critics respond that having taken more forceful action in the past would have been better, but to a large extent the water is now under the bridge. What’s more, it’s very likely that a few months hence we’ll start seeing slightly positive GDP growth and continued weakness in the labor market and that both sides in the Great Democratic Party Banking Family Feud will view that data as vindication for their position."

I don't think so. Like Atrios at Eschaton: "I see round 2" I mean I think Yglesias is right on the general outlines -- slightly positive GDP growth, high unemployment. But, I think one side in the Great Democratic Party Banking Family Feud was fundamentally and importantly right, and one side -- unfortunately the Obama Administration side -- was fundamentally and critically wrong.

Policy has consequences. Obama is the best politician I've ever seen, and he has a fantastically good sense of the politically possible. What he doesn't have is economic advisers, who can teach him, realistically, about the necessary and sufficient -- the consequences of policy -- the non-negotiable tendency of reality to bite.