The first (FDR's emergency procedures) appeared to help the patient's immune system and set it on a fairly long, but continuously upward, path to recovery. The second (the New Deal) was far more extensive and draconian, using a wide array of experimental drugs. The result was that the patient's full recovery – even with heart transplant (WWII) – took more than a decade.
Did I mention the fifth and final stage of recession? It's called Delusion: that's where, healthy again, we look back on the illness, its progress and treatment …and draw all of the wrong conclusions about treatment for the next time we get sick.
So the real questions we should be asking ourselves right now as we contemplate our current economic predicament are: How bad is it? Should we do anything about it or let the economy cure itself? And if we do intervene, what does the past really teach us about treating it?
So let's start at the beginning. How bad is this current recession? It's pretty bad. You only need to look at the stock market and the unemployment rolls to see that. But is it of dangerous and historic proportions? Not yet.
In fact, unless you've been laid off or about to cash in your 401K, your gnawing fear of the current "crash" is probably far greater than its actual material reality. The stores seemed just about as crowded at Christmas; your income is likely to be just about the same as it was last year; everyday life seems just about the same.
There's even a tiny feeling out there, especially in technology enclaves of the country, that we could even start seeing some improvement in those economies by late spring. After all, Windows 7 is coming, the Google Android phone is proliferating, the Palm Pre is cool, it's time for another generation of chips … and who knows what Steve Jobs has up his sleeve?
That, of course, doesn't mean that things can't get a whole lot worse – especially if we've learned the wrong lessons and indulge in the wrong responses. Then we could throw ourselves into a bunch of hurt.
How did we get into this trouble? The standard explanation these days – or at least the one being promulgated by our elected officials, who have a good reason for doing so -- is that it was unbridled capitalism, unconstrained by regulation, that freed Wall Street and the banking industry to revert to their true greedy characters and run amok. The truth, I happened to believe (though you, dear reader, may disagree), was that this mess was actually the result of: 1. Government interference in the marketplace; and, 2. Political demagoguery – "A chicken in every pot, and an unqualified buyer in every house" … which goaded, when it didn't outright force, the banking industry to make increasingly risky deals until it all came crashing down.
If I'm right, and I suspect I am, then we are already learning the wrong lessons from this crash – and because of that, we are already implementing the wrong solutions.
Let's put that aside for a moment. What really matters is that to get out of this recession we need to create jobs. And that's going to be tough because not only will we lose several million more jobs before this is over, but we'll also be adding several million new workers to the economy, thanks to the Baby Boom Echo right now passing through college. That's going to be big deficit to make up.