Fighting the power of pessimism
Sometimes it is hard to be an optimist when the national mood turns pessimistic. Lots of people are down on the US right now. According to the article Pouting Pundits of Pessimism from The Wall Street Journal, in 2004 36% of Americans thought we were in recession. One year later, 43% think so.
But that same article states that at the same time, unemployment fell 5.5% to 5%, and real GDP expanded by 3.7%. Sounds more like a boom than a recession. Here's how the article opens:
During a quarter century of analyzing and forecasting the economy, I have never seen anything like this. No matter what happens, no matter what data are released, no matter which way markets move, a pall of pessimism hangs over the economy.
It is amazing. Everything is negative. When bond yields rise, it is considered bad for the housing market and the consumer. But if bond yields fall and the yield curve narrows toward inversion, that is bad too, because an inverted yield curve could signal a recession.
If housing data weaken, as they did on Monday when existing home sales fell, well that is a sign of a bursting housing bubble. If housing data strengthen, as they did on Tuesday when new home sales rose, that is negative because the Fed may raise rates further. If foreigners buy our bonds, we are not saving for ourselves. If foreigners do not buy our bonds, interest rates could rise. If wages go up, inflation is coming. If wages go down, the economy is in trouble.
The pessimism is reflected in a lot of forecasts. But, many common forecasts of doom have been wrong. Again for the article:
The trade deficit was supposed to cause a collapse in the dollar; but the dollar is up 10% versus the euro in the past eight months. The budget deficit was supposed to push up interest rates; yet the 10-year Treasury yield, at 4.5%, is well below its 2000 average yield of 6% when the U.S. faced surpluses as far as the eye could see.
Sharp declines in consumer confidence and rising oil prices were supposed to hurt retail sales; but holiday shopping is strong. Many fear that China is stealing our jobs, but new reports suggest that U.S. manufacturers are so strong that a shortage of skilled production workers has developed. And since the Fed started hiking interest rates 16 months ago, 3.5 million new jobs and $750 billion in additional personal income have been created. Stocks are also up, which according to pundits was unlikely as long as the Fed was hiking rates.
I think the pessimism is an echo of the nation mood generated by the difficulties of the war in Iraq. The idea that "if we can't do that right, then we can't do anything right." The flooding of New Orleans didn't help either. So, even when their is good news from Iraq, it gets swamped by the common wisdom that we are losing the war. If there is good news about the economy, it is swamped by the common wisdom that the economy is in bad shape.
Me? I'm an optimist. I think the Iraq war will last for a while, but will ultimately turn out pretty well. I think the US economy will continue to grow faster than most of our industrialized competitors.
These things will not happen automatically. Good people will have to work and fight like hell everyday to make them happen. I am optimistic because I know that good people do work and fight like hell everyday and generally things do turn out all right.
Posted by georgegmacdonald at 05:30 PM
The future is too small to find without a magnifier
Q: The iPod Zepto box was empty.
A: It's not empty. Look closely at the period-sized dot in the middle of the box. Now, find the red rectangular square in the center of the dot. This is the outer packaging of your iPod Zepto. In a sterile, wind-free environment, carefully open the outer packaging and remove the clear-plastic inner wrapping. Finally, using the enclosed high-magnification lens, unwrap the plastic and look for a white case. Inside the white case is your iPod Zepto.
Posted by georgegmacdonald at 11:16 AM