Saturday, June 9, 2012

Q: What Happened to the Economic Recovery? A: There Never WAS a "Recovery"

Sometimes the stupidity that spews forth regarding the economy is so strong that it literally makes my head hurt. Case in point was a story published on Thursday by Talking Points Memo with the title, "What Happened to the Economic Recovery?" I should have ignored it and just gone about my business as I no doubt would have been happier that way, but because TPM is a opinion and investigative journalism site that represents mainstream liberal and progressive "thinking" I just couldn't help myself.

Things started off on the wrong foot right out of the gate in the first paragraph:
For several months starting late last year, it looked like Morning in America was finally back upon us. Unemployment claims were dropping dramatically, businesses were adding hundreds of thousands of jobs, and it looked like the country was in the midst of a self-sustaining economic recovery.
Morning in America? Even putting aside the recent zombie hysteria, the last four years have looked to anyone who is actually paying attention to be closer to Dawn of the Dead. It's been a "zombie recovery," propped up by the insane loose money policies of the Federal reserve combined with an unsustainable level of federal deficit spending.

So why the laughable reference to the tired old Reagan campaign bromide?
Some economists saw a boom coming. They believed years of depressed economic activity had created a huge pent-up demand for automobiles, housing, and other major purchases. The spending dam was about to burst. This is the business-cycle theory of how recessions end on their own. Eventually, stuff needs to be replaced.
I guess "some economists" missed the rather glaring data which has shown that American households literally lost trillions of dollars in home equity and stock values in the wake of the 2008 crash, and that overall employment levels remain mired well below the December 2007 peak. The basic rule is so simple that I can't believe I have to say it: people can't spend money if they don't have money to spend and are not creditworthy enough to borrow it. No doubt the brief boomlet probably represented some still employed people making previously deferred purchases, but quite obviously there are not enough such people to make the "recovery" sustainable.

So, who are these "some economists" and why did they blow this call so dramatically?
But the surge didn’t last, and just as quickly as the economy grew, it slowed back down again.

Now one of the forecasters who publicly predicted a sustainable recovery says a combination of economic headwinds and poor timing pre-empted a turn toward high growth. More importantly, he no longer believes the ingredients for swift growth exist to turn the country around quickly.

“The factors are still there but my confidence that they’ll come together and burst into a big ramp up and drive the economy into equilibrium — I’m much less sure about that now,” said Karl Smith, an economist at University of North Carolina at Chapel Hill’s School of Government, and author of the blog Modeled Behavior in a Wednesday telephone interview.

A few months back, Smith believed the economy was poised for a breakthrough. Rents were soaring, as were used car prices — both signs of pent-up demand — and that presaged a simultaneous boom in new car sales and apartment development. It didn’t quite sync up.

“What I think I missed was how fast multi-family housing would be able to ramp up,” Smith admits. “it was at a much gentler pace than I thought … So that’s been delayed. We’ve seen maybe a 60 or 70 percent rise, but we’re not back to the level we were before the crisis despite the huge number of renters we have.”

But to really make the transition from slow to rapid growth, many economic waves have to crest simultaneously.
Excuse me, but RENTS were soaring and USED car prices were rising? THAT'S what led dimwitted economist Karl Smith to predict a strong recovery? Has this moron been asleep for the past 30 years? Americans don't rent apartments and buy used cars when they are feeling flush, they BUY HOUSES and BRAND NEW CARS, preferably McMansions and big ol' gas guzzling Minivans and SUVs. Instead of these trends portending a recovery, they more likely indicated a segment of financially stressed but still employed workers, perhaps those that found lower paying jobs after having been laid off and spending time on unemployment, permanently lowering their expectations. And THAT doesn't signal a recovery but much more trouble ahead for the economy.

But don't worry, Smith has a handy set of excuses for why he was wrong:
Outside forces didn’t help. State and local government worker layoffs continued, the crisis in Europe re-emerged, and Fed officials signaled weak commitment to fostering the recovery.

“As things started to pick up in the beginning of the year, [Fed officials] started talking about how they may have to raise rates earlier,” Smith said. “That did give a sense to people in the financial markets that credit could really start tightening. That could be part of the reason why housing and apartments had a harder time finding financing. I don’t think everything was going to be great if that hadn’t happened, but they contributed another headwind. It was shockingly unhelpful.”

Absent some new catalyst, Smith says it’s hard to imagine the economy will jumpstart itself.

“The European situation is only going to be a headwind in the opposite direction, so we’d need a bigger kick.”
I realize that as a lonely blogger sitting on the couch in my basement I am but a mere pimple on TPM's ass, but nevertheless I would like to offer them some advice. The next time they decide to do an article about the state of the economy, they might be much better served if they didn't completely rely on an interview with a supposed expert who just admitted that he doesn't have a clue as to what the fuck he's talking about.

Bonus: The real morning in America


  1. I find much of modern life amusing. I grew up dirt poor in the backwoods of northern Minnesota. Third or fourth hand furniture in a house built as the family grew (950 sq ft final), milk cow out back, garden on the side of the yard and an ancient, often repaired used car. Family life was about like anyone else's far as I can tell. Guess we had a lot of "pent up demand" we never even realized we had.

    So I look at todays "needs" of new cars, big homes, gadgets up the a.. and, essentially, overblown lifestyle that has become the norm. I'm, particularly, fascinated by economists who sit in an office somewhere studying a bunch of "created" numbers and decide how the world is doing.

    1. "I'm, particularly, fascinated by economists who sit in an office somewhere studying a bunch of "created" numbers and decide how the world is doing."

      And not even a "real" economist at that, as in, one whose income depends on being able to read tea-leaves tolerably well, but instead, a University Professor.. how's the old saw go? "If you can't do it, teach it"?