Recession Skeptics – The Side Unheard in the Media
Recession stories have a lot in common with global warming stories - there are a lot of them and you hear only one side. And like global warming, recession is the subject of a Newsweek cover story, appearing on the front of the magazine's February 4 issue.
The story, "The U.S. Economy Faces the Guillotine," written by Daniel Gross, takes a one-sided gloomy approach to reporting on the U.S. economy. It worked on the assumption a recession is inevitable and may have even already started.
"The Great Global Market Freak-Out of 2008 has everyone asking whether the United States - already on the road to recession - is entering into a protracted period of economic trouble where jobs will be slashed, prices will continue to rise and the dollar will keep falling; and if so, whether the declining U.S. economy will pull the rest of the world down with it," Gross wrote. "A recession is defined as a widespread contraction in economic activity lasting more than a few months, and because of the lag in financial data, recessions typically aren't officially declared until long after they start. In short, the United States could already be in one."
What Gross completely ignored it the possibility the economy will be fine and stave off a recession. There are prominent economists who aren't completely convinced that the United States is "on the road to recession," as Gross wrote.
"Models based on recent monetary and tax policy suggest real GDP will grow at a 3% to 3.5% rate in 2008, while the probability of recession this year is 10%," wrote Brian Wesbury, an economist for First Trust Advisors, L.P., in the January 28 Wall Street Journal. "This was true before recent rate cuts and stimulus packages. Now that the Fed has cut interest rates by 175 basis points, the odds of a huge surge in growth later in 2008 have grown. The biggest threat to the economy is still inflation, not recession."
Wesbury, who also appeared on CNBC's January 28 "The Call." He refuted the idea housing woes will send the U.S. economy because the housing market is only 4.5 percent of the U.S. gross domestic product.
"To put that into comparison, exports are 12 percent of GDP," Wesbury said. "Yes, housing is weak, but exports are booming. They're 14 percent from last year. That's offsetting the pain from housing."
Fortunately, Gross's story had one bright spot. It won't be 1929 all over again.
"That doesn't mean the world is facing the Great Depression II - the world's economies are radically different than they were fourscore years ago, when our forefathers were forced to beg for dimes," Gross wrote.