Thursday, September 16, 2010

The Doomsday Crowd

From the AP:

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.