The situations are very different from each other. The recession in the 70's was provoked by the fed by raising interest rates in order to stop rampant inflation. The cost to the economy has been calculated to 17% of GDP (about $2.8 trillion today). So when the fed started printing money again the economy bounced back rapidly. (and it was "morning in America" - gee thanks for nothing Reagan) Now we had low interest rates before the crisis and 0 interest rates for the forseable future. There will be no bounce back, but a long slog. Very possibly a lost decade. Especially if the deficit hawks (where were they during the Bush spending spree?) gets their way and the government pulls back fiscal and monetary stimulus.
You can say that we are not dealing with the situation, but it is not at all clear what should be done. Or what can be done.
its not the same situation. But Volcker acted sensibly and makes more sense now than congress or the president do.
It is clear what must be done. Or at least not as fuzzy as you suggest. We must face the music, stop playing games and start practicing sensible policies.
we should stop supporting things that have failed certainly.
And subsidizing risk is definitely one thing that doesn't work.
But we are continuing to do so, especially in the housing market. And we are doing so that nobody needs to deal with the reality of the actual value of their homes. Or the actual sad worth of the balance sheets of banks.
Instead we are asking those who acted responsibly to pay for the mess. Or rather we are borrowing like mad so we can dump it upon them later.
I like to say that we're burning the last of the fire wood trying to keep it feeling like Summer, rather than saving it for the Winter that's setting in.
These are different economic situations. But I don't see them being that different except in terms of how our leaders acted in the situation. Alan Greenspan said that he could have stopped the crisis albeit at the expense of a recession with 10% unemployment[1]. In other words, he chose not to do roughly what Volcker did. I'm not saying that's wrong, I'm just saying that there are some places where the current crisis has similarities (and dissimilarities).
"But the government setting the cost of borrowing money is NOT letting the market work."
Erm... so you're saying that the Chairman of the Federal Reserve isn't a big enough believer in the free market if he doesn't want to abolish the Federal Reserve?
I'm saying that in a free market the Federal Reserve would not be setting interest rates. Or the price of anything else. prices would be arrived at through mutual agreement between buyers and sellers.
I can't see how anyone who truly believed in a free market would participate in this massive distortion.
but, hey, that's just me. I'm one of those ingrates that doesn't believe our currency should be controlled by bankers to do with as they wish unaudited.
Transferring private losses to the public balance sheet is going to be disastrous. It's the 'hair of the dog' solution - avoid a hangover by continuing to drink. The problem is the eventual hangover is made that much worse.
We suffered a severe recession because of his tightening of rates, but it set the ship right.
And here we are suffering a severe recession and all we've done is avoid dealing with the real issues.