Is what we have here a failure to explain?

Posted by wpcomimportuser1 Tuesday, September 30, 2008 at 11:33 am

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Jim Poniewozik wonders if continued opposition to the bailout plan stems in part from the media's failure to explain the potential consequences:

[W]hat we've generally seen are either dire—but very vague—warnings, or the general argument that, if credit dries up, that affects loans to businesses and little guys, and people start to lose jobs.

That's all well and good as far as it goes. But it doesn't get to the question of degree. Businesses will be hurt—OK. But businesses are hurt in a lot of economic downturns, some of them mild, some of them so catastrophic they threaten our civilization. Which is this? How badly will business be hit? Like in a typical recession? Or like in 1929? ...

Maybe nobody really knows. (In which case, you've got an obligation to say unambiguously: Nobody really knows.) Maybe they fear creating a panic, and at the same time fear not having anticipated a disaster if it happens, so they cover all bases, leaving their audience confused in the process.

Let me say it unambiguously: Nobody really knows. Barbara's got a piece going up soon at TIME.com (update: here it is) about the effects of the credit crunch that regular folks are already feeling, but they're all of the "typical recession" ilk. And most of the specific warnings you hear from economic forecasters are also along the lines of "unemployment could top 7%." Which is no good if you're part of that 7%, but not a national disaster. Part of the issue surely is just that we're just a nation of whiners who haven't experienced a serious recession since the early 1980s.

I think there is a risk of something dramatically worse than that happening, though. Nobody is able to articulate it clearly because (a) they don't know how likely it is and (b) they don't know how it will play out. It won't play out like the Great Depression, because we now have activist central banks in U.S. and Europe that will keep the money supply from shrinking and an FDIC in the U.S. that will insure that few bank depositors will lose any money. It won't play out like Japanese slump of the 1990s because, for all their flaws, our bankers and our regulators aren't in complete denial. It won't play out like the East Asian financial crisis of the late 1990s, because we borrow in our own currency. And it won't play out like the Scandinavian financial crisis of the early 1990s because we're a big huge country that plays a central role in the global financial system and global economy.

I think it's that last part, coupled with the apparent fragility of the whole structure of securitization and derivativization that has grown up over the last quarter century, that gives people like Ben Bernanke nightmares. But you know how nightmares are: They can be really scary, but it's really hard to explain what's so scary about them after you wake up.

Update: I just had a brilliant thought. Since what we're dealing with is a vague yet possibly gigantic threat, maybe what Congress needs to do is appropriate a vague yet possibly gigantic amount of money. I'll get to work drafting a bill on that pronto.