In the movie ‘Groundhog Day’ from 1993, a journalist (played by Bill Murray) assigned the task of reporting about the groundhog day event in some little town in Pennsylvania, finds himself caught in a time loop and repeating the same hateful day again and again.
Journalists reporting about the financial crisis—and the apparent inability of politicians and institutions to deal with it—must be feeling the same. This is at least what their scripts suggest. It is all about deadlines, impending catastrophes, hurricanes or tsunamis, the danger of infection, the specter of default, or even the coming Armageddon.
The latest example: the debate about the amendment of the debt ceiling in the United States. This is necessary if the U.S. is to be able to continue to pay its bills after August 2, but neither the Democrats nor the Republicans would like to vote for such an increase without some agreement about mid-term structural reforms to facilitate an overall budget deficit reduction in the long-term.
Republicans want to achieve this by cutting spending, Democrats by increasing taxes. In parallel, there are calls for yet another major stimulus package. In fact, all three measures are needed. The principal question is how to combine and phase taxes, cuts and investments; and what criteria to use to guide policy reform. In the latter respect, the weight assigned to distributional justice as opposed to welfare (and profit) maximization is a key issue.
That politicians (and economists) on either the left or the right of the political spectrum have different answers to the above questions is not surprising. Commonsense suggests that in times of crisis it should be possible to agree on a compromise solution and that is what Obama’s approach has been till now. On the other hand, perhaps because this is a major crisis of global dimensions, it might not be enough to settle for compromises which are a bit of everything but in the end nothing much of anything in particular.
Incremental changes are the norm of policy and regulatory reform, radical or paradigmatic changes the exception. This would be the time for exceptional transformation but we might again have to settle for stepwise solutions. Democracy is about finding a common denominator and sometimes this is set very low. However, when that happens, it is very likely we will remain stuck in the time loop.
Get ready for repeats. It is the summer after all.