Devoutly Desiring Depression
Steve Fraser might look mild-mannered, but when it comes to economic doomsaying, he is the Rocky Marciano of recession, the Tiger Woods of turndown, the David Beckham of depression.
Speaking of bending one, Fraser's LA Times column of today, "Symptoms of an Economic Depression," twists U.S. economic data into a harbinger of impending doom. Fraser begins by falsely claiming that "no one wants to utter the word 'depression.'" In fact, Fraser himself, a left-wing labor historian, wants not merely to utter it, but to bellow the word with a 10,000 megawatt bullhorn. Why? Because, as he gleefully predicts in that same column:
This perfect storm [of a bad economy] will be upon us just as the election season heats up, and it will inevitably hasten the already well-advanced implosion of the Republican Party.
I'm setting forth below excerpts from Fraser's breathless jeremiad. Hide the sharp objects, but note how he writes largely in generalities and conclusions largely devoid of supporting data.
- It is not only a matter of mass foreclosures. It is not merely a question of collapsing home prices. It is not simply the shutting down of large portions of the construction industry (which is inspiring some of the doom-and-gloom prognostications). It is not just the born-again skittishness of financial institutions that have, all of a sudden, gotten religion, rediscovered the word "prudence" and won't lend to anybody. It is all of this, taken together, that points ominously to a general collapse of the credit structure that has shored up consumer capitalism for decades.
- The equity built up during the long housing boom has been the main fallback position for ordinary people financing their big-ticket-item expenses, from college educations to consumer durables, from trading up in the housing market to vacationing abroad. Much of that equity has suddenly vanished, and more of it soon will. Also drying up fast are the lifelines of credit that allow all sorts of small and medium-size businesses to function and hire people. Whole communities, industries and regional economies are in jeopardy.
- All of that might be considered enough, but there's more. Oil, of course. Here the connection to Iraq is clear; but, arguably, the wild escalation of petroleum prices might have happened anyway. Certainly the energy price explosion exacerbates the general economic crisis, in part by raising the costs of production all across the economy and so abetting the forces of economic contraction. In the same way, each increase in the price of oil further contributes to what most now agree is a nearly insupportable level in the U.S. balance-of-payments deficit. That, in turn, is contributing to the steady withering away of the value of the dollar.
- Finally, it is vital to recall that this tsunami of bad business is about to wash over an already very sick economy. While the old regime, the Reagan-Bush counterrevolution, has lived off the heady vapors of the FIRE sector, it has left in its wake a deindustrialized nation, full of super-exploited immigrants and millions of families whose earnings have suffered steady erosion. Two wage-earners, working longer hours, are now needed to (barely) sustain a standard of living once earned by one. And that doesn't count the melting away of health insurance, pensions and other forms of protection against the vicissitudes of the free market or natural calamities.
Yikes! But compare and contrast Fraser's largely data-free doomsaying with economist Larry Kudlow's recent column, Bush Boom Continues. Kudlow uses hard facts to make the case that the U.S. economy is in very strong shape. Excerpts:
- Despite all the doom and gloom from the economic pessimistas, the resilient U.S economy continues moving ahead—quarter after quarter, year after year—defying dire forecasts and delivering positive growth. In fact, we are about to enter the seventh consecutive year of the Bush boom.
- The pessimistas are a persistent bunch. In 2006, they were certain a recession was just around the corner. They were wrong. Instead, the economy posted two consecutive quarters of near or above four-percent growth.
- Earlier today, a doom and gloom economic forecast from Macro Economic Advisors was released predicting zero percent growth in the fourth quarter. This report is off by at least two percentage points. These guys are going to wind up with egg on their faces.
- Here are the facts: Americans are working. The 4.7 percent unemployment number remains at an historical low. On a three-month rolling basis, the U.S. economy has added over 100,000 jobs. Meanwhile, the household job count shows that an average of 303,000 jobs have been added in the last three months. This is noteworthy because it suggests that the job market is turning around.
- Hours worked are growing more than 1-percent annually, while workers’ wages are running 3.8 percent, a full percentage point ahead of inflation. As for this week’s productivity report, it was nothing short of spectacular: the 6.3 percent productivity gain was the best in four years. A rise in productivity is good for growth. It’s good for profits. And it’s good for low inflation.
- Speaking of inflation, business inflation is down from 3.5 percent just over a year ago to 1.5 percent today. Meanwhile, oil prices have retreated to $88. And, to top it all off, last night we received a tremendous new number showing household net wealth has headed even higher. It stands at a record $59 trillion dollars. That’s more than seven percent above a year ago.
- Another factoid worth considering is that mortgage refinancings are soaring at lower rates. Since June, they are up nearly 70 percent, while mortgage rates on 15 and 30-year loans are down nearly a 100 basis points. That is a very positive, very welcome development that ought to cushion the plunge in home sales, and maybe even prices.
Ever since President Bush took office, liberal economists have been proven consistently wrong in predicting the worst. Given a choice between the latest prophesy of doom and fact-based optimism, I'm counting on Kudlow.