I have heard arguments, which I want to be persuaded by, that bottoming out this recession is less a matter of government brilliance than simple market capitulation.  Once people really believe the worst, and prices adjust accordingly, we'll be ready for growth again.

I find this attractive in part because there's reason to believe that we are getting closer to capitulation--for all that a trader of my acquaintance used to pull on his hair and shriek "If you think the market has capitulated, it hasn't capitulated, by definition!" whenever anyone suggested such a daft thing.  Housing prices in DC are falling off a cliff, and while the homeowners I know regard this as rank injustice and a horrible economic sign, to me it's a signal that maybe I could actually buy a home of my own in a couple of years.

(No, I'm not looking to make a killing in real estate; I'm looking for a place to live that I can have just as I please.  Yes, dodgy water heaters and leaky roofs and all.)

But I can't quite convince myself that it works this way.  There's a genuine overhang of homes, and a housing market that seems to have frozen up (which is why prices are tumbling over those cliffs--the desperate have to keep on lowering their prices to lure buyers).  Americans genuinely, desperately, need to pay down debt, which means buying fewer goods and services that other Americans make their living off of.  And I think that Arnold Kling is right when he identifies a massive structural unemployment problem.  The financial and housing sectors were grossly bloated, and being a mortgage broker or a structured finance associate does not actually prepare you for much in the fields that are still growing, like health care and bankruptcy law.

No, though I think that people are finally ready to believe the worst, we have not yet seen it.  This recession or depression or whatever we're now calling it is not ready to let its teeth out of us yet.

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