Thursday, May 29, 2008

Naysayers: Always Naysaying




Yesterday the Commerce Department reported that '08 first quarter growth was higher than previously thought: 0.9%, up from the initial estimate of 0.6%. I'd been anticipating this report because often times the initial estimates miss by a considerable margin, sometimes by so much as to change what appeared to be periods of negative growth to be positive, and vice versa. I'm guessing that when the report first came out, a legion of pundits on the left felt cheated when growth wasn't negative, as news of a deepening recession would have armed them with another weapon for cynicism. I didn't want to see a revision showed negative growth, thus rearming the naysayers.

For all that Obama and Hillary harp on the current recession, we are not in a recession. Most economists define a recession as two or more quarters of negative growth, which we are not experiencing and are not too likely to suffer in the rest of '08, either. Recessions by this definition, though, do happen, and not too infrequently. We survived the recession of 2001 with fewer prophecies of doom than we're subjected to today.

If we take the wrong approach to the current situation, though, we could set ourselves up for real failure. The kinds of quick fixes and interventionist measures proposed by Obama and co. could lead to growth actually halting, as opposed to slowing down for a short period of time.

Maybe it's the price of gas that's causing the public apprehension: people can't help but notice the price increases of filling up their tanks? Or Maybe it's the costly war in Iraq, or the highly visible Bear Stearns bailout? Or perhaps the subprime loan turmoil, which is wreaking havoc in neighborhoods not far from my own.

More likely, though, it's that Hillary and co. are heeding the words of wisdom that governed her husband's campaign, "it's the economy, stupid."

The direction of the economy is a surprisingly strong indicator of a party's success in election years. The New York Times noted in a January business article:

A recession could pack enormous political consequences. Over the last century, the economy has been in a recession four times in the early part of a presidential election year, according to the National Bureau of Economic Research. In each of those years — 1920, 1932, 1960 and 1980 — the party of the incumbent president lost the election.
No wonder then, Obama's ads have featured him speaking in front of gas stations, promising the average Americans that he -- and the state -- will save them from the current economic malaise.

Too bad that the lefties' prophecies were not self-fulfilling. The reports of rising inventory investments are only a sign of a resilient economy, and if growth increases beyond 0.9 percent for the next two quarters, Obama may be out of luck. Perhaps he should start putting his eggs in another basket.

Based on ads that I have seen on TV (granted, Massachusetts is not exactly a looming showdown in the election, although South Bend was important during primary season), the focal points of the dems has been the economy. At first it was the war, as it was in '04, but then good news from Iraq changed their course. Perhaps we'll see the same dynamic with the economy.

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