The Economist laments:
Imagine a presidential candidate next year who spelled out the need for deep future cuts in spending on entitlements and defence, as well as the need to raise some revenue (largely by getting rid of deductions); who explained that the pain would be applied only after the recovery was solidly in place; who avoided class or culture wars; who discussed school reform without fear of the Democrats’ paymasters in the teachers’ unions. Better still, imagine a new centrist block in Congress, which might give that candidate (or for that matter a President Obama or Romney) something to work with in 2013.
The political system is too open to so cleanly flip the bird to enfranchised minorities like teachers unions, farmers and everyone within earshot of the Medicare dinner bell.
THE problem today is that we aren’t as wealthy as we thought we were (and elect politicians whose job it is to preserve that illusion). There is a lot of debt that needs to go bad, which means gigantic capital losses. And that capital doesn’t ‘belong’ to bankers, folks.
It belongs to you. It’s your savings. It’s your pension. It’s your home equity.
It’s all well and good to idolize (in hindsight) historical figures that make good decisions in tough circumstances, but we quickly forget the ones that flub their moment of truth. There’s a reason the’re called “tough” decisions. It’s because you’re picking losers.
No politician in his right mind is going to tell voters: I’m going to destroy some of your wealth and keep destroying more until the system starts working again. I’ll let you know when I’m done. Gosh, I hope I figure it out in time to stop before I go too far. Yes, I’m doing this when unemployment is 9%.
But that’s what has to happen. The most painless way is to do it with a burst of inflation. The most painful way is austerity. But it has to happen.
It’s no surprise WW2 happened after the last such episode.