Boom and bust economic and business cycles are a fixed characteristic of free market systems – the unencumbered movement of capital is inerently prone to excess and “exuberant” enthusiasms. Recessions typically have structural reasons and the winnowing of values real and inflated is typically executed in the first six months of a downturn. Markets swiftly respond with money fleeing to safe harbors and heroically punishing “last fool in” enthusiasts.
Recoveries, on the other hand, are usually psychological in nature. Economic survivors peer out from under their parapets, eagerly awaiting the first hint of a turning tide, hoping to catch the economy on a real upswing and avoiding the dreaded “dead cat” bounce. While awaiting the turnaround, capital investments are placed on hold, orders sag and employees are made “redundant.” The effect ripples through the real economy, not just financial markets.
Which is part of the reason that economic signals coming out of Washington are so mixed: The president’s economic recovery stimulus has not yet had its desired effect. Nor could it really, with the real money starting to flow next year, timed to start – coincidentally or otherwise – in conformation with the congressional election cycle.
But meanwhile the natives are getting restless, some are calling for a second (or third, depending on your count) stimulus package. And the relentless drumbeat coming out of the politicians is that this is the worst recession since the Great Depression. Which, while it may have a grain of truth, is needlessly provocative, as Donald Marron’s graph below makes clear:
Comparisons are always inexact: The decline in real economic activity represented by Great Depression took place over multiple years while current downturn spans only two and may not yet have fully played out. Things may indeed get worse before they get better.
But while aggressively lowering expectations over the short term may make good political sense (and make it easier to change the subject), continually invoking Depresssion-era imagery can do real economic damage by depressing the psychology of a demand-driven market.
Unless, that is, the policy opportunities inherent to “letting no crisis go to waste” trump general economic recovery.
When money gets tight I always make sure and spend more. For the Stimulus. Makes perfect sense. Not like giving the money back to the people it belongs to. That would be wrong. Then they would, you know, spend it on things.
As an amateur student of history, I wonder if any of these people really know how bad things were during the depression. I haven’t seen too many men in worn suits selling apples on street corners in my neighborhood. I just wish more people called them on there crisis rhetoric.
Obama bemoaned “distractions” during his campaign, yet this is the biggest distraction his administration is foisting onto the populace. Sleight-of-hand to keep us from seeing what is really going on behind the curtain.
Except that some of us do pay attention – and 2010 is just around the corner.
Idaho Joe … I was born during the Great Depression [1928] and grew up in a society where money, if you had it, was carefully planned for and carefully spent. That stays with a person, and influences his or her spending decisions for the rest of his life. It also influences the degree of horror with which one views stupendously stupid economic decisions which will have appalling, long-lasting effects on our families and children yet unborn.
I’m so grateful to see the graph shown above. It gives us something solid to tie to in the midst of all this government bloviating. I’ve lived through every one of those recessions, as well as the Great Depression. If our present government hadn’t interfered with the normal recovery from our present recession, we would already be on the upswing back to recovery, with weak, unsuccessful corporations in deserved bankruptcy and reorganization, without an overwhelming burden of debt, a grabby government trying to take our individual freedoms away, and statist socialism looming on the horizon.
I think I’m going to have a drinkie now. Coffee anyhow.
Marianne
The morons in chief have to think us fools. One one hand, they sold the stimulus because we had to do something, since the economic situation we faced was “as dire as any since the Great Depression.”
Now, Crazy Joe is running around saying don’t blame us the stimulus hasn’t worked, because “we and everyone else misread the economy”. So which was it? How much worse than the Great Depression was it when you misread it?
Which then begs the second question. If you, José Demente, and all of the smartest guys in the room, “misread” the economy, then why should we believe you when you say we have to act on man made global warming? Or massivly overhaul health care? Could your meter be off on these two things as well? Maybe they aren’t as bad as you say they are. May be “misreading”?
I won’t hold my breath for the tongue bathers masquerading as a press corps to bring up this concept.
A liberal tries to make the case, popular among ideologues masquerading as economists, for spending even more:
So, that’s the ticket. We need to put another $2 trillon on the grandkids Visa, and everything will be hunky dory.
Only in the land of jaberwocky, AKA, the NY Times editorial board.
I love the logic there. We must spend until the economy reaches the level it was at! Because that level was, for reasons unexplained, inherently the “right” level, despite having been the top of a bubble. Brilliant.
The “mistakes” of this administration are not mistakes. They are very craftily planned, a la Saul Alinsky.
As crime fighters always say, “Follow the money.” Well, where has Soros put his money?
Does anybody know?
“Boom and bust economic and business cycles are a fixed characteristic of free market system”
That is false and extremely false!
Boom and bust economic and business cycles are a fixed characteristic of economies whose central banks manipulare the interest rates and supply of money in such a way that would never occur in a free market.
Falsehood has no scalar qualities.
Um, really? I could’ve sworn this was going on for a lot longer than central banks existed. I’m not a great student of Dutch economic history, but I don’t think they had a central bank during the 15th century Tulip Bubble.
I believe history shows that booms & busts have been generally less severe since the Fed started taking a more active role. Some of the busts around the turn of last century were real doozies.
@Lex – I think the English language has given up on precisely defined words. Witness the fact that things can now be “very unique”, which distinguishes them from the merely “somewhat unique.” One wonders what possible use the word “unusual” has anymore.
Ah, I almost forgot. Cut this crap of “everybody misread the economy”, because it was not everybody by far. There is whole school of economics known as the Austrian School that warned about the recession for years.
But most so-called experts would laugh at the Austrian warnings, asking how could be a storm ahead if people were consuming a lot. Then the Austrian would remind your consumption can only be sustainable if it is at most equal or smaller than your production.
Check the video, it proves that it was not “everybody”
http://www.youtube.com/watch?gl=BR&hl=pt&v=2I0QN-FYkpw
Er, just trying to do my part in cutting through the ever thickening fog of bullshit that is surrounding us lately, but I think we are going to be in a perpetual depression just trying to pay for all this stimulous. (And our children and grand children) Realistically we are looking at tax rates of at least 85%. Hummm, maybe we could sell California to the Chinese?
Pixelkiller..’maybe we could sell California to the Chinese?” Only if Pelosi goes with it.
Might reduce the sale price a bit, but would be worth it…
Pixelkiller … and maybe the Republic of Texas could become an independent republic again. The last time this was mentioned, in fun by Governor Perry, a few months ago, the Eastern Elite ruling class had a major hissy fit. We pointed out at the time that Texas was pretty well diversified so we could probably get along quite well by ourselves… we grow great food crops in the Valley, and really nice beef cattle, including Wagyu beef, as well as pigs and chickens. Our barbecue is divine, our seafood varied and delicious, we have petroleum and natural gas to burn. WE have good harbours and naval bases in Corpus Christi and here in Houston. Best of all, we have no state income tax and we live within our means, and we only let the state legislature meet every other year, which keeps the political chicanery pretty much under control. Oh, and nice houses here are much more reasonable in cost than in other seaside states. Most everyone owns guns, for hunting and home protection, and therefore violence is much less frequent than it is in those wussy states up north. As you all know, an armed society is a more civil society. We do have those pushy violent drug cartels down below the border, but I have great faith in our alpha Texans.
Anyway, when you all get tired of our government constantly pushing us around and robbing our pockets, feel free to join us.
There’s plenty of room.
Marianne
You make it sound wonderful.
How can a subject of New Jersey become a citizen of Texas?
Two kinds of Texans — natives (who become expats when temporarily resident in other places), and naturalized. Naturalized Texans are always welcomed with open arms, with several provisos. First, we don’t care how you did it wherever you lived before. Second, study some Texas history — policy decisions today, as well as general attitudes, are found in history. Texas was a debtor’s refuge — debtors fled to Texas after writing “Gone To Texas” on the walls of their abandoned homes. That’s the reason for the inability to attach a person’s primary residence (called “homestead”) to satisfy other debts. Also was a land of limitless potential. The only reason for permanent hardship, was a refusal to work. Reflects in the relatively penurious welfare benefits. It is a land of independent people, who value initiative. Helping hand is at the end of your arm is a prevalent attitude. In short, embrace the lifestyle, and you will be warmly welcomed.
Third, just as the Japanese are convinced that only the Nihonjin are smart enough to understand Japanese, and therefore, speaking perfect Japanese is the defining characteristic, Texans have a similar defining characteristic — can you withstand the blistering summers? Pretty simple, actually. What they made air-conditioning and backyard swimming pools for.
Flight Lead’s niece is an illustrative example. Born and raised in SE Michigan – all her family lived nearby, never knew living away from them (except for short post college swing through Chicago). She and her son and husband all moved to Corpus last year — about as far as you can get from SE Michigan — culturally, ethnically, topographically, weather-wise, not to mention no family nearby. Now, you couldn’t blow her out with dynamite. Loves the weather, loves the beach, loves their boat, loves the fiscal responsibility of government, loves “real” Mexican food. Figures SWA flies both ways.
As a refuge from the Old Dominion (well I was raised in the real Virginia before spending about 20 years in whatever you want to call the People’s Republic of Fairfax (California East politically without the nice weather) and I can attest to being welcomed with open arms. When the media elites made fun of Governor Perry for suggesting secession nobody from around these parts thought it all that funny.
The heat is the heat and I find it less oppressive than the swelter beside the Potomac but I live in Dallas which suffers less humidity than, say Houston.
One example of what I consider demonstrates the common sense approach to governing here in the Lone Star State. On the tollroads around these parts the powers that be just announced they are likely to raise the speed limit to 70 miles per hour. Unlike some places I could mention where the governing seem to want to impose there sanctimonious opinions on how things “ought to be done” on everyone else like 55 mph speed limits on roads where 80 is a comfortable cruise rate, they simply offered a common sense rationale why raising the limit makes perfect sense even in a congested metro area: “the majority of drivers are already going 70 anyway so it is safer…”.
Instead of doubling down on traffic tickets to raise needed tax revenue in the name of “safety” they, in effect said, “the people have voted”.
Hard to imagine the denizens of Sacramento, or Washington, DC for that matter, actually giving a thought to what their constituents actually feel about an issue. But Texas is like that and woe be the politician that forgets it – they end up retired the next election, not invited to the nice parties anymore, and banished from polite company.
While I do miss the beauty of parts of my native state and swell with pride when I think of the contributions it made to two nations (CSA remember?) it lost too much when the political center of gravity shifted from Richmond to N Virginia and became committed to following the lead of the rest of the Northeast in thinking Government can solve the problems of the world by taking from those that produce and giving to those who never have, never will, and frankly never learned or wanted to.
I think in Texas, going back, if you didn’t work hard you died or ended up Commanche fodder. That self-reliance is in the blood and you will never see a crowd of people so united in common purpose as an gathering of Texans reciting the Pledge of Allegiance to the Texas Flag, right after reciting the pledge to our nation’s.
Oh, I forgot, and OldT6Flyer reminded me. You need to learn the words to the state song. No matter what this woman has to say (see p. 4). Despite her wrongness, what a great Texas word in the title. Told the Flight Lead last year, while driving the in the Cotes de Nuits in Burgundy, was glad to see the Texicans had been there, and left a mark.
“Texas, Our Texas! all hail the mighty State!
Texas, Our Texas! so wonderful so great!
Boldest and grandest, withstanding ev’ry test
O Empire wide and glorious, you stand supremely blest.
God bless you Texas! And keep you brave and strong,
That you may grow in power and worth, throughout the ages long.”
Words were modified in 1960 — had to change the original (the way I learned it) “Largest and grandest…” in line three after the admission of Alaska