Economic illnesses are like viruses

February 23, 2009

I'm sick. It's just a cold. All my joints ache, I cannot speak, I don't want any liquid or solid inputs and have little control over my nasal and other outputs. It's just a cold that modern medicine acknowledges it cannot cure.

Mitigation of symptoms is what we get. The throat is soothed by a cough drop that tastes unlike whatever label it has. The nose is dried up and the chest made less congested by a colored liquid drunk from a little cup—orange for daylight, green for nighttime.

This cold is going around. I got it last week from someone who got it from someone else and I probably gave it to someone else. Many people have prescriptions for curing or hastening the cure of the common cold.

Chicken soup is a widely used remedy. A bag of something foul hanging around your neck is said to have medicinal qualities. Orange, grapefruit and cranberry juices are recommended. Bourbon, I know, works wonders in the early hours of a cold but seems to have less effect as time goes by.

My mother, of course, was more expert in treating colds than was my uncle, the doctor. She encouraged or forced the drinking of prune juice to drive the "evil" from the system. I can attest that it drove everything from my system.

Heat was applied to the chest in the form of mustard plasters that had a terrible smell and made me glad my nose was congested. They burned my skin and embarrassed me in that I was being treated like a hot dog.

Cold remedies were unnecessary, according to Ethel the skeptic who lived next door: "Whether you do something about it or you don't, a cold is with you for nine days—three coming, three there and three going."

Thus, too, do we find a multitude of solutions for our current economic woes. Some folks follow Ethel's thinking and urge us to do nothing. The economy is self-correcting. The more we do, the worse we will make it.

Others believe, like my mother, that when there is a cold or an economic downturn, we bring out every tool we have, attempt everything—something will work. The risk is that we will do too little, hurting too many, for too long.

But what kind of remedy should be applied to the economy? Surely we want something that will work quickly. But we also want something that will help provide income in the future. That's called investment. That's called U.S. 31 in northern Indiana and a bridge across the Ohio River east of Jeffersonville. That's called repairing our schools so students have a better environment in which to learn. It is not called a tax break to buy a gas-eating RV or SUV that's already sitting in inventory. It is not called a loan to a bank that uses the funds to make the balance sheet look better and does nothing to lend more to firms that would invest in productivity-increasing education and technology.

My father was the regulatory body of the family. Prevention was his mantra: "If you had worn your earmuffs, if you had put the woolen scarf securely around your throat, if you had only listened to me, Mr. Wise Guy."

Through regulation we probably can prevent the past from repeating, but our greater problem is understanding how new forces can lead to future downturns. Most serious economic downturns have been followed by increased data-reporting and regulatory activity. But in good times we neglect our information systems and their analytic strengths.

Economic illnesses are like viruses. We learn to stop them with certain remedies, but they mutate and could cause a pandemic the next time. Right now, we don't know if this is just a cold and we have a selection of remedies that will do the job, or if this is something truly dreadful.

Marcus taught economics for more than 30 years at Indiana University and is the former director of IU's Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com.

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