20 Sep 2013

Not Everyone Saw the Recession Coming

Economics 7 Comments

Oh man, I saw this op ed by Don Luskin linked by a recent Krugman post. (Well, it might have been from somebody Krugman linked.) I was annoyed with Krugman and the guy he was linking, but Luskin’s piece stole the show. At this point, let me just tell you that Luskin wrote this while George W. Bush was still in office. Check out some of these quotes:

“It was the worst of times, and it was the worst of times.”

I imagine that’s what Charles Dickens would conclude about the current condition of the U.S. economy, based on the relentless drumbeat of pessimism in the media and on the campaign trail….

It’s a virus — and it’s spreading. Do a Google News search for “since the Great Depression,” and you come up with more than 4,500 examples of the phrase’s use in just the past month.

But that doesn’t make any of it true. Things today just aren’t that bad. Sure, there are trouble spots in the economy…And unemployment figures are up a bit, too. None of this, however, is cause for depression — or exaggerated Depression comparisons.

Overall, the pessimists are up against an insurmountable reality: In the last reported quarter, the U.S. economy grew at an annual rate of 3.3 percent, adjusted for inflation. That’s virtually the same as the 3.4 percent average growth rate since — yes — the Great Depression.

Why, then, does the public appear to agree with the media? A recent Zogby poll shows that 66 percent of likely voters believe that “the entire world is either now locked in a global economic recession or soon will be.” Actually, that’s a major clue to what started this thought-contagion about everything being the worst it has been “since the Great Depression”: Politics.

So much for [candidate] Obama’s hyperbole about our terrible economy. But what about the media’s?

A housing “slump,” a housing “crisis”? A “severe” price decline? According to the latest report from the National Association of Realtors, the median price of an existing home is up 8.5 percent from the low of last February. And according to the U.S. Census Bureau, the median price of a new home is up 1.3 percent from the low of last December. Home prices may not be at all-time highs — and there are pockets of continuing decline in some urban areas — but overall they’ve clearly stopped going down and have started to recover. So why keep proclaiming a “crisis” after it’s over?

This would suggest that anyone who says we’re in a recession, or heading into one — especially the worst one since the Great Depression — is making up his own private definition of “recession.” And probably for his own political purposes.

Whatever the political outcome this year, hopefully this will prove to be yet another instance of that iron law of economics and markets: The sentiment of the majority is always wrong at key turning points. And the majority is plenty pessimistic right now. That suggests that we’re on the brink not of recession, but of accelerating prosperity.

Yikes! That’s pretty bad, right? Now for the kicker: Luskin’s piece ran in the Washington Post on September 14, 2008. The day before Lehman filed for bankruptcy.

One last thing: Now that you’ve read the above, just click on this. Come on now kids. Do you at least see why I continue on this thankless mission?

P.S. To cover myself from all accusations of hypocrisy, let me remind everyone that I stupidly pooh-poohed Peter Schiff’s warnings as late as January 2007. In my defense, that was a lot earlier than September 14, 2008.

7 Responses to “Not Everyone Saw the Recession Coming”

  1. Major_Freedom says:

    As Krugman taught us, if a Keynesian makes a prediction error, it didn’t come from any Keynesian model, but rather the individual’s own beliefs.

  2. Cosmo Kramer says:

    As Mark Thornton has noted……. Austrian economics gives us the tools to see the distortions and basis for economic downturns, but does not give us the tools for timing.

    When Schiff begins warning us…… stay invested… wait a few years-ish, then begin rolling into investments that are recession friendly. Being a perma-bull/bear in any sector is a guaranteed failure.

  3. joe says:

    Schiff got it wrong too. He predicted a dollar collapse in 2008-2009 and the dollar got stronger. Wall Street Journal did an article detailing the millions his clients lost by following his advice.

    Getting it wrong while doing PR for the GOP is a bit different than losing millions.

    Right Forecast by Schiff, Wrong Plan? – WSJ.com

    • Cosmo Kramer says:

      That is just pathetic anti-Schiff BS. You should know better.

      How much money have you lost if you bought a stock at $50, and it goes to 100 and then back to 50?

      How about if it goes to 100 and down to 25?

      How about down to 25 and then 100?

      In all three cases: ZERO.

      huh? why? how? The same reason why I was down in my TBF…… before waiting and selling for a 10 percent gain.

      The pathetic anti-Schiff attacks focus on looking at peak stock prices, and using the absolute bottom as the point to determine “how much they lost”.

      -so everyone bought at the top and everyone sold at the bottom?
      -Schiff told everyone to buy at the top and sell at the bottom?

      Or did Schiff make it known that the crash he predicted would bring about BUYING OPPORTUNITIES?

      In fact Schiff said such a thing explicitly.

      So what is the moral of this story?

      COST BASIS matters. Timing of purchases and sales MATTERS. These pathetic anti-Schiff attacks don’t account for this.

      ****There are legitimate criticisms of Schiff and EuroPac portfolios, yours isn’t one of them.****


      That WSJ report was penned at the height of the crisis and bottoms of the stock prices….. gee golly, I wonder if stock prices AND HENCE PORTFOLIOS are doing any better now? People need to do their own research and time their investments appropriately. Anyone that liquidates a portfolio simply because it got clobbered needs to reconsider investing altogether. A legitimate criticism might be portfolio performance VERSUS other portfolios at other funds, S&P, etc.

    • Jim PM says:

      The Schiff haters are hilarious.

      • Mule Rider says:

        And the biggest clown of the bunch is Mike Norman.

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