Deja vu all over again

D?j? vu. It's French for that creepy sense you get when you're in a new situation but feel as if you've been there before. I keep wondering whether what's been happening in the global markets and economy fits that definition: Is this something completely new that only feels eerily familiar? Or is it just another crisis, like so many we've been through before?

To find out whether something of the kind really had happened before or whether it's just my mind playing tricks, I burrowed through old issues of TheMarker. It didn't take long before I found an article I'd written six years ago, in September 2003, which bore the headline "Toga, toga, toga!"

The tech crisis of 2001-2002 was winding down and Israel was beginning to show signs of recovering from the wave of terrorism that had washed over the country at the start of the millennium. Toga, etc. discussed American economic policy, then led by Alan Greenspan as chairman of the U.S. Federal Reserve. I compared it to Israeli policy, which was largely the responsibility of the then-governor of the Bank of Israel, David Klein.

The underlying idea of the article was simple. The U.S. had adopted the economic policy of a toga party, with booze and hormones flowing like rivers, metaphorically at least, as a way to contend with economic slowdown.

I borrowed the image of the toga party from "Animal House," starring the late John Belushi: When things get really bad, opined the heroes of that flick, the only option is to throw a wild toga party.

Over here, the governor of the Bank of Israel was not impressed. He argued that a policy to exit recession based on rock-bottom interest rates, large budget deficits and a weak currency might create the illusion of returning to health. But, Klein argued, it would only cause more trouble down the line, dooming the economy to weakness.

"If you think you can overcome recession resulting from a combination of problems such as the intifada, the global high-tech crisis and the worldwide economic slowdown by throwing an economic toga party featuring interest rate cuts, dramatic deficit increases and currency devaluation then you are delusional," I wrote at the time. "It will end in national bankruptcy. It will turn us into Animal House."

The trouble, I postulated, is that sometimes the decision-makers find it hard to make painful decisions even though they know they should. They put off the evil hour again and again until the pimple develops into a boil and explodes in their faces. America and its Fed are not immune to such travails, I wrote: Israel would do well to think twice before and adopting their economic tenets, however cool and groovy they might look.

My conclusion was that the Fed's policy was likely to cause more harm than good, to lead to Japan-type long-term damage to the economy.

"All we can do is wait and see," I ended the piece.

So much for my article from 2003. We waited, and saw. The toga party policy of 2003 brought another three years of good times, after which came a colossal explosion.

Israel has had plaudits heaped on its head for its conservative policy, which muffled the intensity of the crisis. The Fed, on the other hand, has had its policy roundly slammed. Alan Greenspan's reputation for genius has taken quite a pounding.

The failure of toga party strategy over the long run becomes stark when we answer the following question: Is the situation of the average American better today than it was six years ago?

You know the answer. The situation of the average American isn't better, it's worse. A lot worse. Unemployment is much higher, real wages are lower, the price of consumer staples such as fuel and food is higher. People are losing their homes.

Washington's situation isn't better than it was in 2003 either. Government debt has ballooned. Looking back six years, there is no question that the loose policy Washington shaped and executed did much more harm than good.

Back to our times. No, we aren't suffering from deja vu, where one thinks one's seen a particular movie but hasn't. This isn't deja vu - we really have seen this movie! But this time, as is the case of all worthy sequels, the stunts are more daring, the special effects more dazzling and the budget is a lot bigger.

In short, the togas have been whipped out again. But this time it's Toga 2.0, playing on a big screen at a theater near you.

Will this new movie have a different ending from the first one? We shall have to wait and see. But if it's basically the same script, just at twice the volume, why should we think it will end otherwise?

Therefore, we ignore the lessons of the first toga party at our peril.

The author is the chief executive of Compass Investments, a member of the Psagot group.