There is no issue in America now but the economy. Crisis provides clarity and nothing demonstrates the economy's centrality to our country and its psychology like this lengthening downturn. While America may not be in the Depression, it is in a depression. It is equally clear that there is still a search for leadership. In that search for leadership, time has become a factor, if we are to avoid repercussions rippling beyond the economy.
Since the recession began in 2007's fourth quarter to January 1, 2009, the Dow Jones Industrial Average had dropped over 33% -- from 13,372 to 8,776. In just over two months, it has fallen another 25% (ending March 6, at 6,627). Unemployment has reached 8.1% and GDP has fallen two consecutive quarters -- shrinking 6.2% most recently.
Recent polls show how deeply these numbers resonate. In a late February CNN poll, 70% of Americans responding on issues' importance said the economy was "extremely" important -- 19 percentage points above terrorism, the next highest issue. Only 19% of respondents said improvement would come this year and 62% expected improvement to take longer than one year. Finally, in an even more recent NBC/Wall Street Journal poll, 70% of respondents stated they were "very dissatisfied" with the economy -- ten times more than the 7% who were "very" or "somewhat satisfied" with it.
It is not surprising that economic crisis should be able so quickly and completely to separate itself from other issues. Economic crises are universal -- affecting every region of the country and aspect of life.
As stock indices and polls indicate, America has yet to find the leadership it seeks for this crisis. And in crisis, leadership is crucial. Nobel economist Milton Friedman wrote regarding the Depression: "the detailed story of every banking crisis in our history shows how much depends on the presence of one or more outstanding individuals willing to assume responsibility and leadership."
Leadership may have been easier in the Depression. The crisis was certainly worse then, but the precedents fewer and expectations lower. Today's presumptive leaders are hemmed in on every side by precedent and heightened expectations -- the former they seemingly cannot break, the latter they apparently cannot meet.
With each passing day leadership becomes harder, the distance to get ahead of accelerating events that much greater. Time is a luxury crisis does not give. As Friedman again observes regarding the Depression: “Each failure to act made another failure more likely…[E]conomic collapse often has the character of a cumulative process. Let it go beyond a certain point, and it will tend for a time to gain strength from its own development as its effects spread and return to intensify the process of collapse."
As the downturn continues, the hole deepens. The job of recovery is not simply delayed, it becomes more difficult. And that was already going to be harder than many now expect. Recovery will not simply return the economy to its former state. Many who once could get credit -- as well as those who never should have -- will find it impossible or more expensive to obtain. The economy's trajectory will be lower -- it will take longer to reach its previous heights.
The downturn's continuance also risks non-economic costs as well. For one, it risks creating a new psychology. The Depression left many forever scarred with aversion to credit and borrowing. The same could play out today and add to it fear of investment as well. While many rightly bemoan America's low savings rate -- which has reversed during this financial crisis -- the savings rate's increase is having an economic impact.
The most serious repercussion of a continued crisis comes in a threat to America's free market moorings. America owes more than just its prosperity to it. Our attachment to free enterprise distinguishes us as a nation as much as does the Constitution. The two are pillars, each bolstering the other. The Constitution, by creating free individuals, ensured free economic agents. Conversely, it is impossible to see the Constitution being created by other than free economic individuals. It is hard to imagine either surviving the demise of the other.
It is right that the economy's crisis has swept aside all other issues. The stakes are high and time is short. As the Depression reminds us, it is not guaranteed that the direction America now seeks will come quickly or at all. If it does not, then it will soon become increasingly apparent that the stakes are higher than most now realize and rise well beyond just the economy.
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