ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Tuesday, December 06, 2005

The Economy - Time to Recognize

BizzyBlog has this excellent post on the fact that 43% of Americans still think that the US is in a recession - despite all of the evidence to the contrary. (This is along the lines of my post from last Friday....

“Grouches” like BizzyBlog, Larry Kudlow, Neil Cavuto, and Investors Business Daily are not the only ones lamenting the awful coverage of the consistently growing economy.

In an column, Brian Wesbury, chief investment strategist with Claymore Advisors LLC, joins the chorus of the frustrated (requires free registration), and, at the end, reminds us why the economy in reality has done well in the past few years (bolds are mine; links to the page supporting the 36% and 43% “we’re in a recession” figures added by BizzyBlog):

During a quarter century of analyzing and forecasting the economy, I have never seen anything like this. No matter what happens, no matter what data are released, no matter which way markets move, a pall of pessimism hangs over the economy.

It is amazing. Everything is negative. When bond yields rise, it is considered bad for the housing market and the consumer. But if bond yields fall and the yield curve narrows toward inversion, that is bad too, because an inverted yield curve could signal a recession.

If housing data weaken, as they did on Monday when existing home sales fell, well that is a sign of a bursting housing bubble. If housing data strengthen, as they did on Tuesday when new home sales rose, that is negative because the Fed may raise rates further. If foreigners buy our bonds, we are not saving for ourselves. If foreigners do not buy our bonds, interest rates could rise. If wages go up, inflation is coming. If wages go down, the economy is in trouble.

This onslaught of negative thinking is clearly having an impact. During the 2004 presidential campaign, when attacks on the economy were in full force, 36% of Americans thought we were in recession. One year later, even though unemployment has fallen from 5.5% to 5%, and real GDP has expanded by 3.7%, the number who think a recession is underway has climbed to 43% (page down halfway at link for both stats–Ed.).

….. Sharp declines in consumer confidence and rising oil prices were supposed to hurt retail sales; but holiday shopping is strong. Many fear that China is stealing our jobs, but new reports suggest that U.S. manufacturers are so strong that a shortage of skilled production workers has developed. And since the Fed started hiking interest rates 16 months ago, 3.5 million new jobs and $750 billion in additional personal income have been created. Stocks are also up, which according to pundits was unlikely as long as the Fed was hiking rates.

….. One key reason the U.S. economy has outperformed other industrialized nations, and exceeded its long-run average growth rate during the past two years, is the tax cut of 2003. By reducing taxes on investment, the U.S. boosted growth, which in turn created new jobs that replace those that are lost as the old economy dies. Ireland is also a beautiful example of the power of tax cuts to boost growth and lift living standards.
Other key findings in the American Research Group data (based on “1,100 completed telephone interviews among a random sample of all adults age 18 and older living in telephone households in the continental United States”) show just how much the views of those surveyed differ from reality:
  • After 10 quarters of 3%-plus GDP growth with low inflation and 5% unemployment, “A total of 35% of Americans rate the national economy as excellent, very good, or good and 63% rate it as bad, very bad, or terrible.”
  • In the near-total absence of data that would indicate that there is trouble ahead, “A total of 13% of Americans say that the national economy is getting better, 36% say it is staying the same, and 50% say the national economy is getting worse.”
  • This one’s more judgmental, but with no compelling evidence of economic storms on the one-year horizon, “A total of 17% of Americans say they believe the national economy will be better a year from now, 20% say it will be the same, 61% say it will be worse, and 2% are undecided.”
Read the whole post for Bizzy's take.

Of course, if someone isn't presented the evidence and instead is spoonfed doom & gloom on a daily basis, you can't fault them for their misperceptions... However, those that are aware of the economic data, such as...ohhh, the editors of the NYTimes, the DUers and the Kossacks, and many in the MSM - well, we can blame them and call them liars! (BTW, is there any point in making a distinction between the DUers/Kossacks and the MSM these days? Sure, the MSM is a little slicker and a little more toned down, but the message is the same...)

And imagine what our economic performance would be if people had an optimistic view of their economic future! Because a large part of economics is people's aversion or acceptance of risk and their perception of the future (and more specifically future returns). Someone inclined to believe that things are going poorly is unlikely to spend their earnings...

Oh... and here's a little tip for the readers. This is a sure way to make some dough. If the MSM and company continue to downplay the performance of the economy, it's time to start investing heavily and then clean up once they realize the economy is going gangbusters - which I predict will occur on January 21st, 2009. As Carl Futia has pointed out, the New York Times is an invaluable investment sheet - just do the opposite of what it's reporting. No doubt Warrent Buffet wishes he would've been a contrarian like Carl when they Times predicted that the bottom would fall out of the US dollar...

Your Co-Conspirator,
ARC: St Wendeler

Comments (1)
Anonymous said...

Just caught your link to me through Technorati.

You guys do a good job. I just blogrolled you.

Tom Blumer