As a reader, I know you as a level-headed analyst, and realize that you work in international equities, but I just don’t think there’s much evidence for your proposition that converting the current abnormal recession into a “normal” one “will take time and, like it or not, a degree of government intervention that exceeds anything with which we free marketeers would usually be comfortable.”
I think there’s more evidence for the proposition that Paulson, Bush, and other Washington policymakers have converted a closer-to-normal economic downturn into a real meltdown by fumbling around for months, sending contradictory and confusing signals. There’s got to be a tremendous drag on investor confidence generated by the obvious fact that these folks have no earthly idea what they are doing. Add to that the uncertainty generated by an incoming administration — Obama’s picks may not be scary, but neither are they particularly revealing — and you have, yes indeed, an economic panic generated to a large degree by political panic.
As for recessions and government causation, Cato & co. would argue that the existence of central banking and government-fiat currency is the core of the boom-and-bust cycle, or at least transforms what would be sectoral cycles of limited wavelength into economy-wide booms and busts. That’s not necessarily an argument for an alternative monetary system — you could conclude that enhanced cycles are a reasonable price to pay for fiat central banking — but it does have the benefit of lots of empirical support. It’s not “just” ideology.