Lilguy

Distilling the Economic Data: No Recovery News

I think this is an excellent piece in providing some context to all the much-ballyhooed "green shoots" we continue to hear about. More importantly, I think it highlights an important point: This recession (& maybe depression) is DIFFERENT!

I think the most important difference is that it is a recession driven by a global financial crisis. Rogoff & ????? (can't remember the other guy's name--need another cup o' joe!) performed an excellent service in analyzing all recessions for several hundred years, and pointing out the difference between most recession and those driven by financial crises. Bottom line: They are longer, more severe, and recovery is much slower.

Second, I believe the United States in particular is a significantly different country economically, demographically, and socially than it has been in any other recession (or the Great Depression). I believe we are economically far weaker nationally (deficit, debt, BOP, currency--but still #1 here) and as households (lost jobs, lost wealth, greater debt, much smaller middle class) than in the past. Our demographic is shifting older with the consequent impacts on retirement living, retirement expectations (which I have been high until 2008), tax burden of the working. And, finally, it strikes me that today, compared with the Great Depression, we have a substantially larger proportion of whiners who expect someone else (usually the government) to make things right. The contrast with my parents' and their parents' generation couldn't be more stark.

Third, despite what Dr. Bernanke, Romer, et al., may have learned from their studies of the Great Depression, our economic policy initiatives so far--while relatively huge--have been far too timid to substantially diminish the length or severity of the ongoing recession. They have been based on politically-driven view of our economic condition and prospects (see the White House & Treasury estimates of prospective unemployment that underlies the stimulus and TARP assessments, for example; conditions now are worse than either of those assessments worst case projections). They have largely favored Wall Street over Main Street; the total commitments of $12 trillion run 7:1 in favor of bailing out Wall Street rather than rescuing homeowners, workers, and small businesses.

Finally, and pulling the other points together, while I accept Mark Twain's perspective that although history does not repeat itself, it frequently rhymes, I'm not sure this recession is in the same rhythm, much less the same rhyme, as previous recessions. No simple iambic pentameter here, I think we are off on some new alternative poetic direction. And we won't begin to know the outcome of the poem for months or maybe years.

Under these conditions, it is extremely unlikely we will see a sustained upturn in the economy until at least mid-2010. (Note: I have said elsewhere that the economy may turn up momentarily in 4Q on stimulus and holiday spending, but will revert to negativity thereafter.)