Harry Truman famously wanted a one-armed economist, so that he could get the expert’s advice without hearing “On the other hand….”
With that in mind, I present these opposing views of the economy.
The first hand belongs to the folks at the National Bureau of Economic Research, which is charged with officially declaring the beginning and end of recessions. From a McClatchy article:
The bureau’s Business Cycle Dating Committee met last Friday and concluded that the jury is still out on the recession’s end, announcing that decision on its Web site Monday.
The committee reaffirmed that the recession began in December 2007, but its seven members couldn’t determine whether the recession has ended.
“The trough date would identify the end of contraction and the beginning of expansion. Although most indicators have turned up, the committee decided that the determination of the trough date on the basis of current data would be premature,” the committee said in a statement. “Many indicators are quite preliminary at this time and will be revised in coming months.”
To be sure, the NBER’s declarations often seem out of sync with what Americans feel is happening in the economy — the official start of a recession may come later than most of us might have said, or the end may be marked before most people think things have truly started to get better. In this case, however, the bureau is holding back because of a factor that many people feel directly: joblessness.
Although economic expansion usually is marked by two consecutive quarters of growth, the committee wants to see more evidence of strong and consistent job growth as an indicator that businesses are hiring on the basis of a firming economy.
“We will be ready to assign a particular month to the date of the trough when data revisions have settled down and the expansion has continued to the point where a sudden reversal would constitute a new recession and not a continuation of the one that started in December 2007,” Robert Hall, a Stanford University economist and the chairman of the bureau’s committee, told McClatchy. “If current forecasts hold, that time will come in a matter of months.”
Some 15 million Americans are unemployed, 6.5 million of them for half a year or longer. A full 16.9 percent of the work force is either jobless, working part time because full-time work isn’t available or wants to work but hasn’t looked in the past month because of bleak conditions.
It’s why a sluggish recovery still leaves fear about a possible dip back into recession late this year.
On the other hand…
There are no such fears being expressed by Larry Kudlow, the former Wall Street economist and current CNBC anchor. He wrote yesterday under the headline “A V-Shaped Boom Is Coming”:
Sometimes you have to take out your political lenses and look at the actual statistics to get a true picture of the health of the American economy. Right now, those statistics are saying a modest cyclical rebound following a very deep downturn could actually be turning into a full-fledged, V-shaped, recovery boom between now and year-end.
I’m aiming this thought especially at many of my conservative friends who seem to be trashing the improving economic outlook — largely, it would appear, to discredit the Obama administration.
Don’t do it folks. It’s a mistake. The numbers are the numbers. And prosperity is a welcome development for a nation that has suffered mightily.
Kudlow credits the nascent recovery to “a strong rebound in corporate profits (the greatest and truest stimulus of all), ultra-easy money from the Fed, and some small stimuli from government spending…in a basically free-market economy that is a lot more resilient than capitalist critics think.” He cites the most recent data for employment, retail sales and commodity prices as evidence of the recovery.
At the same time (on the other other hand?) he reiterates his earlier warnings that President Obama’s policies will harm the economy in the long run:
At this point it’s impossible to project a long-lived economic boom, such as we had following the deep recession of the early 1980s. For one thing, tax rates will rise in 2011 for successful earners and investors, quite unlike the Reagan cuts of the 1980s. So it’s possible that entrepreneurs and investors are bringing income, activity, and investment forward into 2010 in order to beat the tax man in 2011. This would artificially boost this year’s economy, stealing from next year’s economy.
And at some point, monetary policy will tighten, with higher interest rates on top of higher tax rates. That, too, could slow growth markedly next year. And then there’s the dozen tax hikes in the Obamacare health takeover, and a possible VAT attack from Paul Volcker, all of which will work against growth in the out-years.
Clearly, we are not operating a supply-side, free-market model today. What I wish for is sound money and lower tax rates, which would promote sustainable economic growth. Instead, we’re getting easier money and higher tax rates, which could mean a temporary boom today and disappointingly slow growth after that.
I think this gets to the reason we see so much caution in Americans’ optimism right now. It does feel like things are getting better — but no one I know feels like we have made the kind of fundamental changes which the aftermath of the housing bubble and financial panic call for. Until that happens — until we come to grips with a new normal, particularly regarding private and public debt, rather than trying to mimic the old normal — I doubt confidence is really going to soar.