During the worst of the financial crisis in late 2008, a senior official at the Federal Reserve came up with a jarring phrase to explain to me why the central bank was throwing out every traditional rule of good policy.
“We’re in a period of regime change,’’ he said. Regime change? Like toppling Saddam Hussein in Iraq? Was the Fed taking over the country?
No, he explained. “Regime change,’’ he went on, referred to an economic crisis that has become so extreme that you have to put aside the old rulebook. What used to be good policy – cautious expansion in the money supply, no bailouts for failing companies, no government intervention in the markets – suddenly has very bad effects. Good is bad, and bad is good.
It will be years before we know for sure, but those upside-down policies may have actually worked. The original financial crisis has receded, most of the banks are still standing and the economy is slowly recovering.
All of which brings me to this new blog, which I am launching today. Economic policy can be baffling enough when times are good. But we’re in a period when even the economics profession is being forced to reinvent itself.
My goal here is to track how economic policy plays out in real time as the United States tries to get itself right-side up again. The Fed has created more than $1 trillion out of thin air and is financing almost all the nation’s new mortgages. The Treasury is borrowing more than $1 trillion a year, which can’t go on forever. But unemployment is still sky-high and inflation is non-existent. The world is still upside down, but who knows the old rules will come back in play?
I am a layman, but I’m a layman who has written about economics for a long time, principally for my former employer, The New York Times. In that role, I have watched policymakers and politicians up close.
My plan is to decipher what political leaders and economists are trying to do and whether it seems to be working. My focus will be on the basics: recovering from the crisis; taming long-term deficits; reforming financial oversight and getting back to something like normalcy.
Economics is abstract and complicated. Politics is concrete and messy. The grist for this mill will be in the daily struggles in Congress, the White House, the Fed, the Treasury and in the debates among economists. The stakes are high, as journalists like to say, and everyone is groping in the dark. It promises to be a good show.
