No Rational Exuberance

Article excerpt

Byline: George F. Will

The underemployment rate is 17.3 percent.

One of conservatism's tasks is to discourage irrational exuberance--or any other kind of exuberance, for that matter. Today this task is not demanding because anxiety about the sagging economy and surging government debt is broad and deep.

Since the recession began in December 2007, Congress has passed two stimulus packages ($168 billion in February 2008 and $787 billion in February 2009), and last month the House passed a $154 billion jobs bill. The economy has been growing for more than six months. Yet job creation is sluggish.

Today's unemployment rate is 10 percent; the underemployment rate--the unemployed, plus those employed part time, plus those discouraged persons who have stopped looking for jobs--is 17.3 percent. Almost 40 percent of the unemployed have been so for seven months or more--which is not surprising: Congress continues to extend eligibility for unemployment benefits, apparently oblivious to the truth that when you subsidize something you get more of it.

There is no precedent for what the nation might be beginning to experience--a torpid recovery from a steep recession. Since World War II, the average growth rate in the first four quarters after a recession ended has been 6.6 percent, and then 4.3 percent for the subsequent five years. In 1982, the unemployment rate reached 10.8 percent; in 1983, the average quarterly growth was a sizzling 7.6 percent.

Today, Americans are still paying down their debts that fueled consumption between 2001 and 2007. Nevertheless, household debt is still 30 percent above what it was a decade ago, so deleveraging has a long way to go. And 23 percent of homeowners with mortgages are still underwater--the value of their houses is less than the amount owed on the mortgages.

The residential-real-estate sector triggered the recession, which now may bring a convulsion in commercial real estate. A quarter of a trillion dollars of loans must be rolled over in each of the next few years. Megan McArdle, business editor of The Atlantic, explains why many of these loans will go bad:

"Take a property that was worth $100 million in 2007, when it was financed with a four-year, $70 million mortgage. That's a reasonably conservative 70 percent loan-to-value (LTV) ratio. …