Sunday, February 03, 2008

Endless Economic Expansion is Not An Entitlement

Today's Americans, their pain threshold lowered by the successful modulation of business cycles, now regard recessions as not mere misfortunes but as violations of an entitlement to perpetual economic serenity. In the 50 years prior to 1945, contractions were frequent and ferocious enough to fray the social fabric. There were three contractions of 5% of GDP, two of 10% and two of 15%. Since postwar demobilization, the most severe contraction -- that of 1982, when President Ronald Reagan and Fed Chairman Paul Volcker stifled inflation -- was 1.9%.

That recession ended in November 1982. If another recession did start last month, then in the 302 months from November 1982 through December 2007, the economy was in recession only 14 months -- 4.6% of the time. The economy was in recession 22.4% of the time between 1945 and 1982.

A recession-free economy is neither an entitlement nor, truth be told, desirable: The "wisdom of crowds" is real but even markets make mistakes and recessions, aka corrections, are, by definition, constructive. Even so, the modern economy's rhythms are much less alarming than any previous generation could have imagined.

From George Will's
most recent column

Note: Recessions between 1854 and 1945 lasted an average of about 20 months, compared to the average of only 10 months since 1945, and 8 months for the last two (1990-1991 and 2001).


At 2/03/2008 9:48 AM, Anonymous Anonymous said...

The real question here in my mind is how many more times can the same system of printing money bail us out before the total collapse of the currency. Printing money and more debt has been the answer every time, the bubbles keep getting bigger and more inflation is always the answer when they inevitably burst, The one institution which comes out ahead every time so far is the federal government.
There is no free lunch, never has been and trend keep going until they stop and reverse.

The truth is that most people do not understand inflation and feel wealthy as long as their asset-prices continue to rise (never mind the state of the currency). So, the inflation-pill is a lot easier to swallow than an economic depression.
Puru Saxena

"For the most part, the American people
have tolerated the inflation bias as an acceptable cost of the
modern welfare state.
The Age of Turbulence p. 481- Alan Greenspan

At 2/03/2008 12:06 PM, Anonymous Anonymous said...

Looks like the spend and borrow Republicans are going to propose a record $3-trillion-plus federal budget on Monday. Just to keep the dream (fantasy/hallucination) of prosperity going.

At 2/03/2008 7:21 PM, Anonymous Anonymous said...

"Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." -
Ronald Reagan

"No man's life, liberty, or property are safe while the congress is in session." - Mark Twain

"If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand." - Milton Friedman

Thought you might enjoy a few choice words. We may as well laugh as cry about the present miscreants in Washington (of both parties).

At 2/04/2008 1:34 AM, Anonymous Anonymous said...

anonymous - 12:06 PM

You are wrong. Republicans want to cut the budget. It is actually the Democrats that are proposing that budget.

At 2/04/2008 7:34 AM, Blogger juandos said...

What could the federal budget be if there were NO entitlements in it?

IF the IRS knows what its talking about it seems something like 66 cents on the dollar is WASTED on socialist safety net nonsense...

Major Categories of Federal Income and Outlays for Fiscal Year 2006 (page 33)

At 2/04/2008 8:48 AM, Anonymous Anonymous said...

juandos, what we really need is more regulation. If there were sufficient regulation we would not be facing the current credit crisis that has spread and continues to spread globally.

At 2/04/2008 10:26 AM, Anonymous Anonymous said...

Yes, anonymous. Regulation MUST BE the answer. I am glad you are so sure.

I am glad you have the confidence that investments that were not understood by the bankers that created them will be better understood and regulated by the all knowing government.

At 2/05/2008 8:33 PM, Blogger juandos said...

"Looks like the spend and borrow Republicans are going to propose a record $3-trillion-plus federal budget on Monday"...

LOL! Hey anon @ 12:06 p.m. where have you been? You do know that the party of the Seditious & Sleazy has been in charge of both Houses of Congress since late '06, right?

"what we really need is more regulation"...

Hmmm, is this YOUR way to excuse full fledged adults who are incapable of fulfilling their part of a contract?


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