Speaking at New America just now, Laura Tyson, who served as president of Clinton's Council of Economic Advisers and is now a member of the Volcker Commission, drew an interesting contrast between the impact the economic crisis has on American consumers and European consumers. "Think of this from the perspective of individual citizens," she said. "We're the ones who are going to see a huge increase in homelessness, in people without health care, in people without unemployment benefits, and in people not getting the education they need. The Europeans are right to say that they have strong automatic stabilizers in effect. From the perspective of Americans, it's worse for them. They're undercapitalized, overleveraged, and they don't have a serious safety net protecting the key things they need to worry about."This might, she implied, help explain why America has been so much more aggressive about countering the crisis. They are much more vulnerable to recession than the Europeans. As evidence, she brought up every economist's favorite bugaboo: Japan's lost decade. It was bad for growth, she argued, but not particularly devastating to individuals. "The Japanese households, in the last decade and a half, they never experienced the economy the way economists experienced it," she said. "The economist saw the economy as in dire shape. You asked the average Japanese person if they were in dire shape, they didn't see it that way."You could argue, on the one hand, that this serves the American system well. We're not insulated from emergency and so we respond swiftly and, relative to the Europeans, decisively. But it also worsens crises by further slackening economic demand. A consumer afraid of losing her health care and her child's college education and her income will pull much further back than a consumer who feels the fundamentals of her existence are secure. At dinner last night, Tyson spoke of the downward multiplier that crises of confidence can inflict: The economic impact of Lehman's collapse, she says, was multiplied because it devastated the financial system's confidence in its own survival. The analogy holds to our safety net, where consumer reactions to fiscal instability are multiplied because they can't be certain of their economic survival. HOW SAFETY NETS PROTECT AGAINST FISCAL COLLAPSE.
Speaking at New America just now, Laura Tyson, who served as president of Clinton's Council of Economic Advisers and is now a member of the Volcker Commission, drew an interesting contrast between the impact the economic crisis has on American consumers and European consumers. "Think of this from the perspective of individual citizens," she said. "We're the ones who are going to see a huge increase in homelessness, in people without health care, in people without unemployment benefits, and in people not getting the education they need. The Europeans are right to say that they have strong automatic stabilizers in effect. From the perspective of Americans, it's worse for them. They're undercapitalized, overleveraged, and they don't have a serious safety net protecting the key things they need to worry about."This might, she implied, help explain why America has been so much more aggressive about countering the crisis. They are much more vulnerable to recession than the Europeans. As evidence, she brought up every economist's favorite bugaboo: Japan's lost decade. It was bad for growth, she argued, but not particularly devastating to individuals. "The Japanese households, in the last decade and a half, they never experienced the economy the way economists experienced it," she said. "The economist saw the economy as in dire shape. You asked the average Japanese person if they were in dire shape, they didn't see it that way."You could argue, on the one hand, that this serves the American system well. We're not insulated from emergency and so we respond swiftly and, relative to the Europeans, decisively. But it also worsens crises by further slackening economic demand. A consumer afraid of losing her health care and her child's college education and her income will pull much further back than a consumer who feels the fundamentals of her existence are secure. At dinner last night, Tyson spoke of the downward multiplier that crises of confidence can inflict: The economic impact of Lehman's collapse, she says, was multiplied because it devastated the financial system's confidence in its own survival. The analogy holds to our safety net, where consumer reactions to fiscal instability are multiplied because they can't be certain of their economic survival. 
