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Friday, September 23, 2005

Krugman: Crisis in Confidence

Paul Krugman on our declining confidence in the economy, in our political leadership, and ultimately in ourselves:

The Big Uneasy, by Paul Krugman, NY Times: Although Hurricane Katrina drowned much of New Orleans, the damage to America's economic infrastructure actually fell short of early predictions. Of course, Rita may make up for that. But Katrina did more than physical damage; it was a blow to our self-image as a nation. Maybe people will quickly forget the horrible scenes from the Superdome, and the frustration of wondering why no help had arrived, once cable TV returns to nonstop coverage of missing white women. But my guess is that Katrina's shock to our sense of ourselves will persist for years. America's current state of mind reminds me of the demoralized mood of late 1979, when a confluence of events - double-digit inflation, gas lines and the Iranian hostage crisis - led to a national crisis of confidence.

Start with economic confidence. The available measures say that consumer confidence, which was already declining before Katrina hit, has now fallen off a cliff. ... It's true that gasoline prices have receded from their post-Katrina peaks. But even if Rita spares the refineries, a full recovery of economic confidence seems unlikely. ... Then there's the war in Iraq, which is rapidly becoming impossible to spin positively: ... Most Americans say the war was a mistake; a majority say the administration deliberately misled the country into war; almost 4 in 10 say Iraq will turn into another Vietnam. And many people are outraged by the war's cost. The general public doesn't closely follow economists' arguments about the risks of budget deficits, or try to decide between competing budget projections. But people do know that there's a big deficit, that politicians keep calling for cuts in spending and that rebuilding after Katrina will cost a lot of money. They resent the idea that large sums are being spent in a faraway country, where we're waging a war whose purpose seems increasingly obscure.

Finally, fragmentary evidence - like a sharp drop in the fraction of Americans who approve of President Bush's performance in handling terrorism ... suggests that the confluence of Katrina and the fourth anniversary of 9/11 has caused something to snap in public perceptions about the "war on terror." In the early months after 9/11, America's self-confidence actually seemed to have been bolstered by the attack: the Taliban were quickly overthrown, and President Bush looked like an effective leader. ... But now that more time has elapsed since 9/11 than the whole stretch from Pearl Harbor to V-J Day, people are losing faith. Osama, it turns out, could both run and hide. It's obvious from the evening news that Al Qaeda and violent Islamic extremism in general are flourishing.

And the hapless response to Katrina, which should have been easier to deal with than a terrorist attack, has shown that our leaders have done virtually nothing to make us safer. And here's the important point: these blows to our national self-image are mutually reinforcing. The sense that we're caught in an unwinnable war reinforces the sense that the economy is getting worse, and vice versa. So we're having a general crisis of confidence. It's the kind of crisis that opens the door for dramatic political changes ... who will provide leadership, now that Mr. Bush is damaged goods?

    Posted by on Friday, September 23, 2005 at 01:02 AM in Economics, Politics | Permalink  TrackBack (0)  Comments (7)

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