The Problem With Incompetence at the Top

Kash Mansori and Menzie Chinn’s debate at the WSJ’s Econoblog is notable for the agreement that the two have over the issues confronting us. I am broadly in agreement with the gist of their discussion as frequent readers here at AB will know. But what I think deserves additional emphasis is that it is an economic crime that we are even TALKING about the possibility of a major dollar meltdown in the next few years.

Now don’t get me wrong. I am not predicting global financial disaster. I still think that the odds of an international financial catastrophe are are much less than even. But the fact that our economy has been managed in such a way that a catastrophe is even imaginable is a testament to the complete incompetence we have had in the area of macroeconomic management over the past five years. We ought to be in a position where even substantial economic shocks cause only temporary perturbations to our growth path. Instead, we are in a position where sinking one tanker in the Persian Gulf could cause a cascade of events leading to a dollar crisis and a depression. Again, I am not predicting this, and I wouldn’t say that it is likely but the fact that we could assign a probability greater than 0.01 to such a thing is really and truly terrible.

Another scenario – The People’s Bank of China decides to stop buying our paper and that provokes a dollar debacle and a depression. Do I think this will happen? No. But what on earth are we doing giving such power to people who so obviously don’t have our best interests as their top priority? National security? This Administration can’t seem to understand what it even is. Let’s just hope we stay lucky for another two years. Then we can start getting our house back in order.