Interregnum Interruptus

by digby

Krugman brings up something this morning that I was coincidentally chatting about over dinner with a friend last night — what are the ramifications of having the lamest of lame ducks visibly uninterested and engaged at this moment of economic crisis, (not to mention a congress that has time to laud convicted felons in their midst but can’t seem to stick around to deal with this huge problem developing in Detroit?) I vaguely recalled something similar in 1932 but couldn’t remember the details.

Krugman fills in the blanks:

There is, however, another and more disturbing parallel between 2008 and 1932 — namely, the emergence of a power vacuum at the height of the crisis. The interregnum of 1932-1933, the long stretch between the election and the actual transfer of power, was disastrous for the U.S. economy, at least in part because the outgoing administration had no credibility, the incoming administration had no authority and the ideological chasm between the two sides was too great to allow concerted action. And the same thing is happening now. It’s true that the interregnum will be shorter this time: F.D.R. wasn’t inaugurated until March; Barack Obama will move into the White House on Jan. 20. But crises move faster these days. How much can go wrong in the two months before Mr. Obama takes the oath of office? The answer, unfortunately, is: a lot. Consider how much darker the economic picture has grown since the failure of Lehman Brothers, which took place just over two months ago. And the pace of deterioration seems to be accelerating. Most obviously, we’re in the midst of the worst stock market crash since the Great Depression: the Standard & Poor’s 500-stock index has now fallen more than 50 percent from its peak. Other indicators are arguably even more disturbing: unemployment claims are surging, manufacturing production is plunging, interest rates on corporate bonds — which reflect investor fears of default — are soaring, which will almost surely lead to a sharp fall in business spending. The prospects for the economy look much grimmer now than they did as little as a week or two ago. Yet economic policy, rather than responding to the threat, seems to have gone on vacation. In particular, panic has returned to the credit markets, yet no new rescue plan is in sight. On the contrary, Henry Paulson, the Treasury secretary, has announced that he won’t even go back to Congress for the second half of the $700 billion already approved for financial bailouts. And financial aid for the beleaguered auto industry is being stalled by a political standoff. How much should we worry about what looks like two months of policy drift? At minimum, the next two months will inflict serious pain on hundreds of thousands of Americans, who will lose their jobs, their homes, or both. What’s really troubling, however, is the possibility that some of the damage being done right now will be irreversible. I’m concerned, in particular, about the two D’s: deflation and Detroit.

Irreversible things happening over the course of the next two months should scare the hell out of us and yet sometimes I watch what’s happening with the sense that we’re all speaking underwater. Maybe that’s how it always is when you’re in the middle of a complicated, unfolding crisis. But it would certainly be reassuring to know that those who are in charge were putting everything they had into dealing with it. Holding their breath until the new president can take the reins has no actual effect on events.