Monday, April 19, 2010

Anatomy of a Doom and Gloom Economic Blog Post


I just read a post at another blog and it says we're all doomed

Cited passage from another economics blog which says the economy is in fact headed straight to hell. The citation also includes at least one basic mathematical error and/or one misunderstanding of a basic economic concept or number which a simple reading of the data explanations would have avoided. For example, "not in the workforce" has a very specific meaning -- or, more specifically, it does not mean that everyone who "left the workforce" simply ran away from the job market screaming to the hills. As another example, the unemployment rate is a lagging economic indicator.

Because this above referenced web site said we're doomed, it must be true.

In addition, all government economic numbers are wrong.

But wait -- this number (also issued by a government agency) is correct! Why? Because it's a bearish number, and we all know that all bearish numbers are correct! So, I'll trumpet this one from the hills.

And -- here is a link to a person in an important federal job position who says we're all going to hell:

Link to a news story from a major news source such as Bloomberg or CBS.Marketwatch which states that a person in the Federal government indeed said something bearish about the economy.

Of course, the fact that I routinely call this same person a shill for corporate interests does not in any way lower his/her credibility. In fact -- it makes it more credible. Why? Because I say so!!!!!!

And if you question my authority, I will be forced to make-up a resume to impress you, and thereby add further credibility to my statements!!!!

Here's the deal with what Bonddad is really saying here.

The economic blogsphere -- in general -- did a really good job of pointing out and calling the recession. A lot of people (myself included) noted the huge amount of leverage in the system and publicly stated there was no way the economy could handle that level of debt. Score one for the blogsphere.

But then the economy started to get better. GDP started growing. Manufacturing picked-up. Retail sales started to increase. The market started to rally. In short -- things started improving. But a ton of people were wedded to a negative perception. As the numbers got better they continued to argue the economy was on the brink of a collapse. And the blog posts became more and more ridicules.

Here's the basic deal about where we are. The economy has generally turned the corner. But, we face three primary issues that need to be addressed.

1.) Most of the jobs (over 70%) lost during the recession were in manufacturing and construction. Neither of these areas is coming back at anywhere near previous levels. The housing market is still trying to recover and manufacturers are replacing employees with technology. These long-term unemployed need policies to get them working again. This is the most important issue the economy faces. Sometime ago, New Deal and I proposed starting a modern day WPA program. Considering the poor shape of the US' infrastructure, this is a sure-fire way to get at least the construction portion of the work force going again.

2.) The housing market is healing, but needs further help. The tax credit should be extended indefinitely. Mortgages need to be modified en masse. Banks need to take the hits (which their bottom lines should be able to handle now).

3.) Financial regulation needs to be passed. In this area, we basically have two choices. Either we accept large institutions with a powerful regulator, or we break up the large institutions. Either way is fine, but make up your mind and get to it. In addition, CDS' need to be traded on an open exchange.

Dealing with the above three points will go a long way to helping the economy continue to heal.

As for the blogsphere, look where the numbers have been headed for the last 9-12 months and you'll see a positive direction. Does that mean it will continue? Who knows. But let the data tell you instead of your preconceptions.