Brad DeLong resorts to the apocalypse:
Q: What is the Geithner Plan?
A: The Geithner Plan is a trillion-dollar operation by which the U.S. acts as the world's largest hedge fund investor, committing its money to funds to buy up risky and distressed but probably fundamentally undervalued assets and, as patient capital, holding them either until maturity or until markets recover so that risk discounts are normal and it can sell them off-in either case at an immense profit.
Q: What if markets never recover, the assets are not fundamentally undervalued, and even when held to maturity the government doesn't make back its money?
A: Then we have worse things to worry about than government losses on TARP-program money-for we are then in a world in which the only things that have value are bottled water, sewing needles, and ammunition.
I have very little to say about the nuts and bolts questions at stake here; macro-economic predictions is certainly not my thing. But while he may be completely right or wrong about his measured approval for the Geithner plan, I'm (likeseveralothers) fascinated by the rhetoric of the statement, the way an entire area of inquiry gets located off-screen on the assumption that, if it were true, we have much bigger problems that render this one irrelevent. In the TV show House, MD, it isn't uncommon for our polymathic protagonist to instruct his team to assume that a patient's condition is not the result of the most obvious explanation, because if that were the case then the condition would be terminal and nothing could be done anyway. And in the context of that kind of diagnostic triage, it makes a kind of sense: assuming that the patient is suffering from a curable condition will produce the most likely favorable outcome.
But in this case, it's a bad metaphor. The US economy is not a patient, ontologically defined by whether or not it will live or die, and if you want to know what life looks like after a collapse, look at Zimbabwe right now, or any number of places whose economies have gone into strange unthinkable places: it looks a lot like life anywhere else, only worse. In short, it goes on. Which is why it simply makes no sense to bracket off one possible future just because it cannot, should not, better not be true. Something shifty happens if you grant, right from the start, that a very likely thing is not worth thinking about on the assumption that, if it is, the world is over. After all, predictions of the world's demise are an absolute staple of American cultural history, but they have, one hundred percent of the time proven to be exaggerated. We've heard this song before.
In this sense, while the old cliché that someone is"rearranging deckchairs on the Titanic" is a nice way to criticize people who prefer to rearrange deckchairs rather than address the iceberg, it's good to remember that the world is not a ship, ontologically defined by whether it is sinking or floating; the world is a place in which history has a way of going forward, even if those living in it have difficulty imagining how. Life always goes on, somehow, and maybe badly, but the character and dynamism of its continuity is of profound importance for those of us who want to live in the future.
Everything I've read suggests that it's quite rational to speculate that the majority of these assets might not be undervalued, that they really are close to worthless, and that we actually do live in a world economy that's just lost all four engines. But the difference between a controlled crash-landing, where at least most of the passengers have a good chance of survival, and pretending that the engines still work (because the alternative would be too dire to imagine) is extremely important, and needs to part of this discussion. If those engines are dead, we need to look for soft landings, rivers, empty fields, and think about getting people buckled into their seats. We need to review safety procedures, and radio ahead for ambulances. For those of us in this metaphor who are flying without parachutes, the question of what happens after the apocalypse can't get bracketed off.