Economists peddling dire warnings that the world's number one economy is on the brink of collapse, amid high rates of unemployment and a spiraling public deficit, are flourishing here.
The reason these "theories" are successful -- or at least gain traction in the public mind -- is this:
According to a poll by the StrategyOne Institute published Friday, some 65 percent of Americans believe there will be a new recession.
At this point, we get into a chicken and egg story: did the economists start this, which led to the people becoming pessimistic, or has the pessimism always been there, leading to an increase in the consumption of doomsday warnings.
The answer is it really doesn't matter, although my guess is the high unemployment rate is the primary driver of the public's thinking/perception.
One of the reasons why I have become so data driven is just this type of hysteria that we've been seeing over the last (approximately) one year regarding economic writing. For example, consider the information in the latest Beige Books which I covered here and here. The data says the economy is slowing, but is not near recession. Consumers are spending, but they are picky about their choices and the prices they pay. Manufacturers are slowing, but primarily because of construction/housing issues. Or consider the financial sector, which I covered here and here. The data says the sector is healing after a very severe contraction/downturn. Then there is the fact that we see none of the traditional procurers events to a recession in the current economic environment; they're just not there. In short, the economy is growing, albeit weakly.
Does this mean there are not problems? No. The unemployment rate is the obvious stand-out, but there are others such as high levels of household debt, and the ever-present trade deficit.
But the data does not warrant -- and has not warranted for some time -- the apocalyptic predictions we've continually seen promoted on the internet; the data simply does not warrant those conclusions.
5 comments:
When will this disconnect be realized and result in higher stock prices?
My reason for thinking there will be a second recession is the likelihood that Republicans will gain control of one or both houses of Congress.
If so, there will be no further countercyclical stimulus. There may well be a push to widen the deficits through reckless tax cuts and wasteful Defense spending. There will be sabotage of financial reform and of healthcare reform. If there's a second wave of the financial crisis, they are pledged not to do anything to halt a collapse. They very likely will tie up the president in phony investigations.
This election is not just about putting the people who caused the financial crisis in charge again. It is about putting people who have openly committed themselves to wrecking government in charge at a time of financial turbulence.
The US has what is euphemistically referred to as "political risk."
Charles, I think the good news may be, that with the results in the GOP primary for Senate in Delaware, the Dems will actually hold on to the Senate. That, plus Obama's veto pen, will probably stop some of the things a GOP House will try to pass. I guess, the downside is, getting anything POSITIVE done for the economy, will be even harder than it is now.
Anonymous, being unable to do positive things at a time of crisis is as bad as doing destructive things during good times. I believe the Republicans see this as a life-or-death struggle between (to vastly oversimplify) a resurgence of the atheistic New Deal and the establishment of Christian capitalism. They see the destruction of government as their path to victory. I think Michael Lind said it best when he suggested that their tactics are those of the Bolsheviks and their aims are authoritarian.
My guess is that this will result in a pre-election rally and, assuming they gain power in at least one house, a post-election crash. But, as with all market predictions, it's purely a guess
My gloomy attitude is based on my perception that the global economy is almost as fragile now as it was in late 2008.
Governments around the world have done enough to postpone armageddon, but have not done enough to reconstruct the economy's foundation to a strong enough state to withstand more shocks.
Those shocks will come; can they be withstood? I fear not, and if I'm right, armageddon could still happen. For now, it has only been postponed.
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