Monday, October 25, 2010

"You've Got Your Wish, George: You've Never Been Born."

I love It's a Wonderful LIfe. It' a fabulous piece of Americana and a helpful contrast to the kinds of rhetoric we've been hearing lately. Too bad it's only played at Christmastime. 

The picture above takes place in the little shack next to the river Clarence (the angel, left) and George Bailey (Jimmy Stewart) jumped into. George wishes he'd never been born so that all the trouble he thinks he's caused would go away. Clarence (after appropriately consulting with the Powers That Be) gives him his wish and you get to see what Bedford Falls looks like if George had never existed. 

Besides the message that we all impact those around us (for good or for ill) there's another reason why George Bailey's story is important. This is an exercise in what is called a counterfactual. It says, what if we'd done that other thing when we had the chance? It's counterfactual because, unlike Bedford Falls, we can't create the alternative reality to see what might have happened. We wind up stuck with the reality we have. Any attempt to evaluate the "what if"s is mere fantasy (like imagining what could have happened if the Chargers had made that field goal).

The current political environment is filled with counterfactual arguments. Consider the rhetoric around the Stimulus Act signed by President Obama in February 2009. The $787 billion investment was designed to strengthen the deteriorating economic circumstances of early 2009. One third went to tax cuts, one third to contracts/grants, and one third to benefit support. At the time, the economy was shedding 650,000 jobs a month in December 2008, January 2009, and February 2009. The unemployment rate was 8.1%

Today, there are at least two brands of counterfactual arguments in play. On the one hand, folks like Paul Krugman, Robert Reich, and others argue that the stimulus bill was  about half the size needed and we would be far better off if the president had forced through a bigger bill (as if that would have passed). On the other hand, there are a host of voices including Republican leadership, Fox News, and Tea Party activists arguing that the stimulus was a waste of money, had no impact, and isn't the American way. They argue that we should have let bad banks fail, call out bad mortgage holders, not support the auto industry, and cut taxes on corporations in order to "support the job creators".

But neither Krugman nor Cantor can prove their points, absent the work of Clarence the Angel. We don't have a way to imagine what would have happened if we had acted differently in February of 2009. Is it reasonable to argue that the unemployment rate would be around 6% if the stimulus had been bigger? Does it make sense that if we'd done nothing, that the economy would be stronger today (or, alternatively, have an unemployment rate nearing 18%)? 

This is not to say that the Obama administration didn't make mistakes. Christina Romer did suggest that unemployment could be held to 8% in a report written in December 2008 before fourth quarter numbers were in, a figure that was too specific and incomplete. It would also have helped if the administration had laid out a time table that could be tracked in terms of dispensing and implementing the stimulus funds. And they've recently discovered that "shovel ready" meant "project defined and ready to begin the long permitting process" But the critics, who demagogued the stimulus for two months before  it passed, were asking "why hasn't it worked?" a mere five months after it was signed.

We can't imagine what would have happened if we had invested infrastructure dollars in the levees of New Orleans prior to 2005. We can't estimate what would have happened if the Iraq War had lasted just a year. We'll never know what would have happened if the Padres August-September losing streak had stopped at 6 games instead of 10. It's fun to talk about and keeps pundits or sportscasters busy, but doesn't advance our common efforts.

The real question should be: "What will we do next?". It's a Wonderful Life ends with all of George's friends coming to his aid when he was in trouble. From there, George has to figure out how to move forward to strengthen the Building and Loan, improve his community, protect against the greed of Mr. Potter, and support his family. But he will continue to take the long view (which Buildings and Loan were based upon, unlike today's financial markets; a theme I'll address is coming thoughts about Michael Lewis' The Big Short and the foreclosure paperwork troubles) and not worry about what might have been.

The facts are tough enough without spending all of our time with the counterfactuals. But then what would they pontificate about all day on cable news?

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