Gloom or Doom

As a review of my recent posts will indicate, the set of news items most interesting to me of late is the discussion among economists and investors about US economic prospects in the next five to ten years. Although I have not attempted a comprehensive survey of the economics and investment literature, and I frequently have to turn to reference sources to better understand some of the economics items that I do read, my sense of the consensus is that something not-so-good is going to happen to the US economy in the next few years. Aside from some Bush appointees at the Treasury (who inspire almost universal embarassment among the economists I read), I don't know of anyone who thinks the future looks bright and sunny. The argument is rather between those who think a tremendous crash is in the offing (the 'Doom' group), and those who feel that some lesser downturn, a 'soft landing,' is more likely (the 'Gloom' group). I won't attempt here to summarize the entire debate. If you're interested in considering the views on both sides, I suggest this link-filled post from Brad DeLong as a good entry into the conversation.

I would put myself in more worried section of the 'Gloom' category--I think there are simply too many sensible people in the world with too much at stake in the US economy to let it slide into total chaos. But more important than my relatively uninformed opinion is the consensus that current US economic policy is simply unsustainable. No one is arguing for more of the same as the route to fiscal happiness. Those more bullish on the future rely on assumptions that current US policy will at some point return to something more rational--like the Reagan II policies of the 1980s. There is also, as I've noted, a general belief that the people currently in charge of US fiscal policy are either ridiculously naïve, or simply not interested in or capable of actually managing US finances. Hopefully, if there is a crisis point, it can be delayed until after January, 2009; or, if it comes before then, it will finally wake up the Bush administration to the looming danger.

Finally, if you're feeling more Gloomish than Doomish, it's still worth considering what a 'soft landing' might look like. (It sounds kind of nice, doesn't it?) How about looking back to a somewhat analogous soft landing, when the US began to come down from the high deficits and real estate boom of the Reagan years? That soft landing featured a brief recession with a slow recovery, and such 'bumps' as the savings and loan crisis.

Update: Two posts w/ excellent comments describe various scenarios for the hard/soft landings--the first is at Angry Bear; the other is at Macroblog.