Wednesday, June 09, 2010

Don't Believe the Double-Dippers

From Cato's Alan Reynolds in Thursday's WSJ:

"Using statistical trickery to convert a weak job market into an imminent recession has become a bipartisan political strategy. Robert Reich and other big government Democrats play the "double dip" card to peddle more deficit spending on refundable tax credits and transfer payments. Conservative Republicans often become double-dippy for very different reasons—to argue (quite plausibly) that hundreds of billions in "stimulus spending" has proven counterproductive so far, contributed to the debt, and will eventually lead to higher taxes.

Those who want to know what is going on must sift through all of this bipartisan gloom to distinguish between: 1) agenda-driven dire warnings and 2) the boring reality of a sluggish recovery being partially paralyzed by ominous threats of punitive taxes and onerous regulation."


At 6/09/2010 11:18 PM, Anonymous Anonymous said...

President Obama’s budget forecast reflects a cock-eyed optimism about our fiscal future, yet even it projects total U.S. debt will rise from 2009’s 53 percent of GDP to 90 percent by 2019. “Most economists,” Sen. Judd Gregg (R., N.H.) notes, “will tell you that an economy can handle between 30 and 40 percent debt as a percentage of GDP. But a nation’s economy starts to get into trouble when that ratio gets up around 60 percent of GDP. When it gets up to 80 percent of GDP, basically an economy can’t handle that for very long.”

The day of reckoning may already be here, according to a new study by the International Monetary Fund. It pegs our “general government gross debt” for 2010 at 92.6 percent of GDP. By 2014, the IMF estimates, government debt will pass the 100 percent–of–GDP tipping point (hitting 106.4 percent to be exact) and keep on going. To forestall a Greece-like fiscal catastrophe, the IMF says, lawmakers must act now to reduce government debt by more than $1.6 trillion. Instead, Congress is looking to pass an “extenders” bill that will run up hundreds of billions more in debt.

National Review

Don't worry, be happy.

At 6/10/2010 12:05 AM, Anonymous Anonymous said...

We're probably going to be in and out of recession for, at least, the next ten years. Every time we catch our breath gas will get too high, and we'll slow down again.

Eventually, we'll wise up, and realize we need an ethanol refinery in, basically, every county, and then, we'll have to build them.

It's going to be a frustrating ride.

At 6/10/2010 12:47 AM, Anonymous Charles Platt said...

It is a species survival trait to listen more closely to doomsayers than to optimists. Therefore when trying to assess the future, we are up against our own genetically selected tendency to fear the worst.

At 6/10/2010 2:29 AM, Anonymous Anonymous said...

Double dip is pretty tough. As bad as this recession is, there wasn't some long stretch of negative GDP growth, it was 3 quarters. Q4 of 2008 to Q2 of 2009. That's how hard it is to get negative GDP these days.

The Fed and the government are doing all they can not to have negative GDP. They probably can do that long enough that the next dip isn't the 2nd part of the W, but a recession all its own.

At 6/10/2010 6:39 AM, Anonymous Anonymous said...

I don't like to make predictions, especially about the future. But I think it's important to look at all the evidence not just the evidence that supports your hopes. That's why I posted the article by Laffer as a comment in another thread and why I'll also point out it's common knowledge that the stock market is a leading indicator. When it goes down it might be profit taking, a correction in the middle of a bull market, herd mentality to international news, or it might be signaling a future economic downturn.

I learned of this blog from a link at instapundit. Over there he is only posting bad news. Maybe he wants to make the Dems look bad. So when I read this blog and only see good news I get the same impression of bias that I get when I read Instapundit. I read them both and hopefully get a reasonable understanding from both sites.

Also, isn't it sort of pointless to quibble about double dip vs. sluggish growth. If the economy grows at .1% or decreases at -.1% is that significant? I'd like to see healthy growth. If it's growing at .1% that's nearly as bad as -.1%. So if someone accurately predicts that we won't have a double dip recession, just slow growth, I wont be impressed with their acumen until I see how slow slow is.

At 6/10/2010 7:40 AM, Anonymous Anonymous said...

Laffer explains why we're going to have a double dip. Look at what Obama's put on the horizon in taxes and entitlements...the only reason there's a relative "boom" right now is because people are trying to get things done before the storm comes when bush's tax cuts go away and the obama bar gets raised...

At 6/10/2010 9:09 AM, Blogger bix1951 said...

"I'd like to see healthy growth."

What might that be?
We have been told what to believe there. Healthy growth is 3% to 5%, depending.
What if that is wrong?
What if healthy growth is only 1% and anything above that is damaging?
What does healthy growth mean?
What is unhealthy growth?

At 6/10/2010 9:14 AM, Anonymous Pingry said...

Pffff....Alan Reynolds is such a lame policy jockey.

Don't take anything he says seriously. This is the same guy who denied that there was a housing bubble and referred to the prospect of a recession as a "fairy tale":

"No Housing Bubble Trouble,"Washington Times (January 8, 2005):

"In short, we are asked to worry about something that has never happened for reasons still to be coherently explained. 'Housing bubble' worrywarts have long been hopelessly confused. It would have been financially foolhardy to listen to them in 2002. It still is."

"Recession Fairy Tales," Townhall (October 5, 2006):

"When it comes to homes . . . many people have spent the last four years fretting that the 'housing bubble' might end. That is, they worried that overpriced homes might become more affordable. This is not quite as nonsensical as worrying the price of oil might fall too much, but it's close."

Wow, good call hombre.


At 6/10/2010 9:42 AM, Anonymous morganovich said...

SEATTLE (MarketWatch) -- The most prescient statistical guide to the health of the U.S. economy is set to turn negative on Friday for the first time since early 2009, an event that is going to spook super-bulls and give comfort to super-bears.

But the keeper of the measure's flame says both sets of extreme views will be unwarranted, as it only means growth is about to slow noticeably -- not collapse.

The gauge is called the ECRI Weekly Leading Index, and for the past five decades it has been one of the few products of economic research that has risen above the level of tarot cards and necromancy.
Can capitalism save the world?

Wall Street columnist David Weidner interviews the producers of "The New Recruits," a documentary about social enterpreneurship, which uses free-market innovation to try and reverse extreme poverty.

While not considered mainstream due to its reliance on non-linear math to predict cycle turns rather than on regression formulas that extrapolate the past, the WLI has nevertheless forged an enviable reputation for accurately calling recessions and recoveries well in advance.

In mid-2007, the WLI forecast the 2008 recession when most economists and investors were still seeing blue skies ahead. In late 2008 it surprisingly forecast a u-turn higher into recovery amid the depths of the global financial crisis. The WLI accurately retained its positive posture for a year, garnering criticism from bears all the way, before peaking and rolling over last winter again.

Now the flip downward that began in November 2009 is about to swing all the way down into negative territory. So I called up Economic Cycle Research Institute chief Lakshman Achuthan in New York to find out what this means.

Achuthan, who's always quick with the metaphors, says that an economy recovering from a recession is like a jet aircraft, which logs its strongest acceleration when taking off -- defying the forces of gravity and pointing toward its maximum expected altitude.

Once it's at 30,000 feet, a plane levels off and stops accelerating. But it doesn't fall, it just cruises.

"You wouldn't want your plane to accelerate throughout its flight," Achuthan said. "It would blow up or burn through all its fuel before getting anywhere."

The business cycle expert says the WLI's steep decline of the past two months so far only suggests that U.S. GDP growth has peaked for this cycle, so there won't be any quarters in the recovery that rise at more than 5%. And while it does not forecast a peak in employment growth yet, the fact that the WLI is rolling over now suggests job growth will peak in late summer. Though forecasts like this are always messy, if they're accurate they should help government and business leaders determine the best policy remedies now, rather than waiting to witness it occur later.
Slowdown or recession?

The big question now is not whether a slowdown lies ahead but whether it will turn into a recession. The WLI's current condition says the answer is not knowable yet, and won't be known for a few months because while the downturn so far is pronounced it is not yet persistent.

At 6/10/2010 10:30 AM, Anonymous Premise said...

2) the boring reality of a sluggish recovery being partially paralyzed by ominous threats of punitive taxes and onerous regulation.

Boring reality of a sluggish recovery, in stark contrast to the daily exuberance of a V-shaped recovery we see here.

What exactly was the point of that article?

At 6/10/2010 10:33 AM, Anonymous Anonymous said...

"Punitive taxes and onerous regulation"???? What horror, run kiddies, run.

Sooner or later you gonna have to pay down debt...either through taxes or inflation....Pick your poison.

If you don't regulate you'll have another crisis....and next time throwing taxpayers money at it to rescue the gamers as well as the taxpayers won't even be possible if the debt is not paid down by then.

How many of these crises do you have to have before you learn your regulation lesson??? 1929, 1986, 2008... Anybody see the trend in those numbers?

At 6/10/2010 10:54 AM, Blogger juandos said...

Apparently Alan Reynolds is trying hard to forget the costs we'll be incurring because of this Congress and the administration...

At 6/10/2010 12:54 PM, Anonymous Joe Armendariz said...

Laffer wrote in the WSJ this week that the economy will collapse next year due to the Bush tax cuts expiring at the end of this year...

At 6/10/2010 5:40 PM, Anonymous doubleBubble tripleDip said...

'housing bubble' might end. That is, they worried that overpriced homes might become more affordable. This is not quite as nonsensical as worrying the price of oil might fall

When price of oil falls, lot of expatriates get sent home from Arabia. For every seller there is a buyer but for every customer there is a vendor. Does government tell us which to pity, which to hate? Do we spring for it? Was it Adam-Smith's Idea that increasing efficiency should bring lower prices thus more consumption thus more incentive to work at competitive production and competitive pricing thus higher standard of life? Do tariffs, monopoly's, taxes, and government expenditures on regulation which require support from taxes all trash our standard of living? Should we elect officials who will spend nothing, but volunteer their time to pay down the federal debt by sale of federal assets then dissolve the government?

Thanks for waking us up. Thanks heaps, Pingly

At 6/10/2010 7:30 PM, Anonymous Craig said...

How many of these crises do you have to have before you learn your regulation lesson???

You don't really want regulation -- we already have plenty of that. I suspect that what you really hanker for is some sort of government planning that would eliminate risk.

At 6/10/2010 10:36 PM, Anonymous Anonymous said...

"I suspect that what you really hanker for is some sort of government planning that would eliminate risk."

If you mean risk to the taxpayer....the answer is : Yep, 100%.

If you already have "plenty of regulation"...well, it's obviously ineffective.

At 6/11/2010 8:26 AM, Anonymous morganovich said...

is this "v" shaped?

WASHINGTON (Reuters) - Sales at retailers unexpectedly fell in May for the first time since September following a record slump in purchases of building materials, adding to fears the economic recovery was losing some steam.

The Commerce Department said total retail sales dropped 1.2 percent, the largest decline since September

At 6/28/2010 7:31 AM, Blogger Robin said...

The title is not really what the article is about. It's about misuse of a couple of employment statisitcs to make a bad situation look much worse.
The article I wrote in early 2005 was a critique of people who were predicting a housing recession in 2005, not 2008. My point about overpriced houses in CA, FL, NV and AZ having to come down to become affordable was correct. Read the whole thing, not just select sentences.
I was the first to predict the 2001recession, according to the Financial Times, and just three months late in 2008 for reasons I explained in the FT at the start of that years.
Alan Reynolds


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