Thursday, January 17, 2008

PostHeaderIcon Let's call it Phil...

There is one word that most in Washington -- especially in the Executive -- hate, it's the "R" word: Recession.

There. I said it. Like Hermione Granger said of Voldemorte: "Saying his name takes away the power."

I don't fear the R-word like most. Perhaps it's because I'm reasonably well educated or have most of my finances in order. Perhaps it's because I've lived through the dark days of the mid-80's during one of the first oil busts.

What I have come to fear -- and it's not irrational -- is the "response" to a recession that inevitably comes from the political establishment.

When a politician says, "The economy is sound..."

The harbingers of doom are in conflict with the fingers-in-the-ear set. Everyone has seen the same numbers. Everyone knows the trajectory, but few in power want to acknowledge the elephant in the room... so they call it Phil. Anything but the R-word.

Nothing is actually done at this point other than to talk up the positives... which is probably the most sound response for dealing with a recession as any.

HERESY! you say. If everyone recognizes there's a problem, shouldn't you try and fix it?

Unfortunately, the chattering class tend to want to drive a narrative -- it's oh-so-much-more-dramatic -- which means that the soon enough the 24-hour news cycle picks up the chatter. Regurgitating the chatter is so much easier than doing real analysis, so we soon see an uptick in the negatives. Now these negatives may be true and they do hurt real people, but just like the drumbeat that leads to war... nothing must get in the way of the story. After all, by now, "everyone knows" we're in a recession... right?

Well, since I only have a degree in Economics, I have to point out the fallacy of "everyone" recognizing when a recession is occurring. Since the time of the Great Depression, recessions have be marked as having occurred (past tense) when a bunch of musty old economists finally get around to agreeing that yes, indeed, the historical data from the last 8-10 quarters (having been massaged, revised and published) shows that there were 3 or more consecutive quarters of "negative growth".

(Now, "negative growth" is not actually "shrinkage" -- it may just mean a one-to-one expansion of the economy to match population... or what is viewed as "shrinkage" is actually a correction of the good old supply and demand curve back to equalibrium.)

So think about it -- by the time a recession is actually "officiall recognized", it's generally already over.

These are also aggregate figures that vary as well, depending on how they are pulled together. While it may have some value to chart the entire U.S. economy as a whole for some measures, you lose the real impact of what is happening regionally or by industry... one more reason why a "one-size-fits-all fix" never actually fixes anything except the politicians' approval ratings.

So-called "stimulus" packages tend to miss the mark for several reasons -- not the least of which is that they are never really "targeted" no matter what someone says. To be politically paletable, too many people in the aggregate have to get a piece of the pie... so rather than dealing with the structural problems that may have led to economic downturns in a specific region or industry, you essentially rob Peter to pay Paul to give everyone $300 -- which is not enough to get people who are destitute back on their feet, the middle class to spend it rather than sock it away to avoid being in the previous category, or affect the spending patterns of the wealthy that are generally fairly recession-proof anyway.

Structural economic change to promote growth -- repositioning old industries for new ones, changing predatory lending practices, etc. -- take time (and political guts)... which is why they are rarely done in response to "Phil"... and of course, when the cycle is (as everyone agrees) on the upswing, there's no incentive to change either.


Related Posts with Thumbnails

Blog Archive