Train Wreck Ahead

My classmate from the University is a World Famous Economist.  When the Republicans are in he has a big job in Washington, and when they are out he retreats to Stanford.  A year ahead of us was another WFE who serves when the Democrats are in.  Yin and Yang.

Our class held a symposium on a beautiful fall campus weekend, and the WFEs and sundry colleagues presented a two day series on economic policy. 

There were broad and frightening areas of agreement among the economists, and the areas of disagreement were surprisingly narrow and esoteric.  Speakers of every persuasion agreed that the  U.S. fiscal picture can be summarized by a railroad sign reading “train wreck ahead”.  All agreed that budget spending is trending too high, that revenue is too low and that it is just a matter of time before either the creditor nations stop lending to fund the deficits or the interest burden will be unbearable.  All agreed that no conceivable growth will narrow the gap.

Two differences emerged, which did not seem very big to me.  The conservatives felt that the debt crisis may be imminent, and the liberals believe it is some years away.  I wondered if the conservatives want the Democrats to have to fix it, and the liberals want to postpone thinking about it until 2013.   Likewise both WFEs graded the Federal Reserve Bank’s 2008 crisis as a “C”,  one suggesting that they should have been more predictable and the other that they should have been more creative.  

Warren Buffett has written an Op-Ed in the Times “Pretty Good for Government Work” speaking of the government’s interventions in the Fall of 2008 in which he says to Uncle Sam that “…there is a fog of panic – and, overall your actions were remarkably effective”.  I am more inclined to agree with Buffett than the WFEs.  I don’t think the exact actions of the Fed or the Treasury were nearly as important as the facts that they acted swiftly and decisively to avoid a worse crisis.  Buffett says to Uncle “...in this extraordinary emergency you came through.”

Now comes the hard part.  In the past week the chairmen of the President’s bi-partisan commission on the deficit have issued their recommendations, and Nancy Pelosi has already gone beserk.  The recommendations seem largely appropriate to me but  may not get enough support in the commission to become a recommendation of the entirety.  Train wreck ahead.