The Nightmare Scenario
If you’ve been reading The Washington Post lately, it’s hard to miss the emerging outlines of what could be thought of as the economic Nightmare Scenario — the worst-case scenario in which the tentative recovery we’ve been slogging through over the last year is strangled by a plunging Dow and collapsing consumer confidence.
It’s not a pretty thing to think about, but look at these two stories and I challenge you not to:
The executive summary: the slumping U.S. stock market is dragging down markets all over the world. And President Bush doesn’t have the first clue what to do about it. (Apparently the best proposal his brain trust could come up with came from economic advisor Larry Lindsay, who argued for a narrow cut in the capital gains tax rate, to encourage investors to buy new stock — an idea sensibly shot down by Bush’s political advisors, who pointed out that it would seem like another giveaway to the rich.)
Can anyone read this stuff and not think of poor Herbert Hoover in 1929, playing King Canute in the face of the rising tide of business disasters? Hoover’s biggest failing wasn’t as an administrator — he ably demonstrated his skills in that field by feeding Europe after World War I as the head of the Allied relief effort. His failure was instead a failure of imagination — he simply could not comprehend a world where markets failed to correct themselves. Hopefully Bush & Co. can muster up a bit more creativity than poor old Hoover. The early signs, however, are not encouraging.
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