CHICAGO—Maybe it was the imminent passage of the stimulus bill, but 30,000 feet over Ohio last Friday afternoon, as President Obama was heading to Chicago for a long weekend, "catastrophe" suddenly seemed too strong a word.
Or maybe the president was just trying to keep hope alive when he noted that things have been worse than now. In fact, nearly everyone's grandparents have had it worse than we do. Americans are tough, resilient, inventive—and we will survive.
He said it, not I.
Obama's reflections on America's economic past were part of a wide-ranging discussion with five columnists the president invited along for the Washington-Chicago flight. He was responding in part to a question about the potential looming "catastrophe"—a word he invoked as recently as the previous Monday night's news conference—if the stimulus package and other hoped-for measures aren't put in place, and fast.
"What does catastrophe look like?" I asked.
With characteristic calm, Obama described what happened in Japan in the 1990s, when core problems in the banking system were papered over (his term). Should we follow that same path, he said, we might never "fully get private credit flowing again, and the economy contracts severely and then sort of limps along for a very long period of time."
Obama pointed out that a key difference between then and now is that Japan had extensive foreign currency reserves—and the U.S. was pulling the world economy along. Now all economies, including China's, are "decelerating at a fairly rapid rate."
"So, if what happened in Japan is duplicated here in the United States, there's nobody else to help drive the engine of growth, you could end up seeing an even more protracted and prolonged worldwide contraction. And I think that would have a severe impact on our quality of life."
What that means, specifically, no one seems willing to say—for good reason. One of the greatest challenges for the president since taking office has been to convince the American people that our situation is serious, while not scaring them into economic paralysis.
Thus, he steered the conversation away from catastrophe toward a reflection on history familiar to baby boomers, who grew up hearing their parents' hole-in-our-shoes, miles-in-the-snow stories about the Great Depression. Things are not as bad now as they were in the 1930s or even the early '80s when, Obama reminded us, he was still in college. Young people—by which he did not seem to mean the columnists aboard—are simply unfamiliar with hardship, he said.
"So for a huge number of people out there, they're just not accustomed to seeing a bad economy with really high unemployment and very bearish markets. ... What we're going through now is nothing compared to what our grandparents went through during the Great Depression."
The truth is that what Obama's grandparents went through was nothing compared to their grandparents went through, which may not be such good news. Historian Scott Reynolds Nelson, writing last October in the Chronicle of Higher Education, noted the economic parallels between now and the really bad depression known as the Panic of 1873.
Striking similarities include exaggerated optimism on continual economic growth, too much credit based on unbuilt or half-built houses, and low-cost products (from the U.S.) that undercut prices in Central Europe and threatened trade.
Things got much worse before they got better. But they did get better.
No one has a crystal ball these days—certainly not Obama, as he keeps telling us. But his optimism and faith in the American character may be our best medicine. Asked what the American people should do—shop?—he urged confidence that "the same productive capacity that we had before is still there." Describing government and the economy as ocean liners, not speedboats, he said our goals are long-term. Nothing can be judged by a one-day market rise or fall. At the end of his first presidential term, Americans will be able to say that we are in a different place.
Where that is, no one dares speculate. But it does seem that history, like nature, is cyclical and that our "worsts" become less worse over time. Someday our grandchildren, those little gleams waiting to be realized, may look at their shrinking retirement funds and console each other: "Hey, back in 2009? Much worse."
