The great recession II

My post on "the great recession" prompted this response from reader Jay:

The recession is maybe not visible in restaurants or hotels or at the airport because we still have to eat and sleep somewhere. But if you look at profits of almost every business that doesn't deal with social services you'd see the terrible decrease. The sales drop daily and there is nothing you can do about it. So maybe it's not visible in the streets when walking around but if you dig in, you see the damage this recession did to the economy.

Take care, Jay

Jay, first off thanks for the feedback. However, let me disagree and also correct a possible misconception. First off, while people do need to eat and sleep, that doesn't explain what I saw. We all need to eat, but that doesn't mean we need to dine on filet mignon at every meal. In the same vein you don't need to sip overpriced margaritas and dine out at the San Antonio Riverwalk just to quell one's hunger pangs. One can just as easily fill their gullet by hitting the supermarket.

Similarly, while you need to sleep, you don't need to take a vacation (which is why a number of people travel) and those that do could just as easily sleep at the Motel 6 instead of the semi-sold out La Quinta that I referenced in my earlier post (which was about $40 cheaper and located half a mile away).

Here is a scene from a mall in San Antonio yesterday:

Again, this is just a Monday afternoon outside of a strip of clothing stores.

The point to all of this is not that the recession is a myth or that unemployment isn't occurring. It is simply that amidst all the doom and gloom that perhaps some perspective is needed.

Coincidentally last night I had dinner with my grandparents and jokingly asked them if the current environment -- pointing to all of the surrounding tables, mostly full of patrons -- at the Tex-Mex place we were at reminded them of the Great Depression. They didn't find my comment terribly amusing and scoffed at the suggestion, with my grandfather proceeding to explain how during the Great Depression that his mother would explain before every meal why they were eating that particular dish, that the ingredients were on sale and that financial considerations dictated that she use them.

Looking around I just don't think we are very close to that point. At all.

Oh, and I am finally back in D.C. My flight to Memphis was completely sold-out while the flight to BWI was at about 75-80% capacity -- the first non-sold out flight I have been on out of the last four.

Update: Apparently my anecdotes about air travel are being borne out in the statistics.

The great recession

The Economix blog takes a look back at the history of this moniker, and concludes that believing the current recession is the worst ever is not a new phenomenon:

But here’s the thing: Nobody can take credit for coining the term “The Great Recession” during the last year. Why? Because the “Great Recession of 2008″ is not the first recession to be slapped with the lofty title. Every recession of the last several decades has, at some point or another, received this special designation:

• Some economists believed the recession of 2001 would be a “Great Recession.”
• In “The Return of Depression Economics,” first published in 1999, Paul Krugman wrote about the “Great Recession” of his era.
• The downturn of the early 1990s was on occasion referred to as the “Great Recession.” The term was especially used to describe the situation in Connecticut.
• Some referred to the recessions of the 1980s as the Great Recession.
• Forbes proclaimed “the Great Recession of 1979″ in an issue dated Nov. 26, 1979.
• Before that, Forbes had proclaimed 1974-75 as the “Great Recession.” So did Newsweek, and so did this New York Times column.

And so on.

Anecdotally, I can remember during the 1991 recession watching the morning news -- Good Morning America I think -- and seeing a report about something like 7,000 people lining up to apply for jobs at a hotel in San Francisco as an indication of how grim the recession was.

Traveling for the past couple of weeks I haven't seen too many obvious signs of a great recession or depression. Both flights I have been on were sold out. The first hotel room I tried to get Saturday night had zero non-smoking rooms available. I had to wait a few minutes for a table for lunch at a San Francisco restaurant where entrees ran around $20-25.

That's not to say that everything is perfect, but this is hardly a Great Depression redux.

Update: Related stuff here.

Another update: Just returned from the San Antonio riverwalk. Here was the scene:

The restaurants and cafes were fairly busy on a Monday afternoon around 3-3:30pm -- not exactly lunch hour. The local mall was doing brisk business as well. Now, does this mean the economy isn't in bad shape? No. But let's also have some perspective on how bad things really are.

Origins of the crisis

According to the conventional wisdom the current global recession is the fault of -- who else -- the U.S. Cowboy capitalism run amok produced an economic calamity that has spread around the globe, forcing the rest of the world to suffer for the sins of the Americans. Alan Reynolds over at the Cato Institute's blog, however, notes the following statistics in real GDP growth over the past 4 quarters:

U.S.	-0.2%
France	-1.0
Germany	-1.6
Britain	-1.8
Italy	-2.6
Japan	-4.6

Reynolds says:

Does it make sense to blame the largest declines in GDP on one country with the smallest decline? If so, then we need some explanation of how some uniquely American “illness has spread” to so many innocent victims.

He makes a good point. If you want to believe that the U.S. is responsible for the decline in fortunes of these other countries then there would seem to be a few logical possibilities:

1. These countries were highly invested in the U.S.
2. These countries were highly dependent on U.S. consumers for buying what they produce
3. Some combination thereof

Possibility #1 means that these countries, for all their rhetoric about how dangerous American-style capitalism is, wanted a piece of the action and didn't exactly put their money where their mouth is. Possibility #2 means that the domestic consumers in these countries have so little money that their companies are dependent on the U.S. for growth. Neither would seem to reflect very well on them.

Another piece of food for thought is that we keep hearing, especially from the Obama/leftist camp, about how the cause for much of this crisis is an insufficient amount of regulation. Well, if everyone else has been suffering worse yet have more regulated financial systems than us, what does that say about that particular line of reasoning?

Crisis

President Obama has described this as the worst economic crisis since the Great Depression. Oh really? (via Cato Institute)

One possibility is that he is ignorant. The other is that the man who preaches hope is trying to scare the hell out of us in order to get his Democratic wish list -- aka the stimulus bill -- passed. Neither is very comforting.

Update: And there's this from the Calculated Risk blog:

Scary video

Last night I watched a short video clip of an interview with money manager Peter Schiff that scared the hell out of me. The gist of the interview was this: Bush did not allow the free market to operate under his administration, encouraged an economy built on borrow and spend, and now Obama is poised to make a bad situation worse with passage of the stimulus bill. What was already destined to be a sharp recession, he says, will now become a depression that will also witness the onset of hyperinflation.

While I am not sure how much I agree with that last prediction, I think he is at least on target with his diagnosis. At the onset of the last recession policymakers freaked out so badly that they did whatever it took to dull its impact, most notably slashing interest rates. In large part they succeeded, with the last recession fairly mild based on a number of metrics such as unemployment claims, the misery index (unemployment plus inflation), the service sector index or auto sales. The problem here is at least two-fold, with such policies both crimping the salutary effects of a recession -- basically cleaning out the detritus that had accumuluted during the previous boom -- while also setting the stage for growth based not on sound fundamentals such as increased productivity but easy money.

President Obama has talked a lot about the need for hard choices and change. If he really means that, then he needs to embrace the fact that a sharp recession may be what is needed to place this economy on a sound footing. His economic stimulus bill will accomplish nothing except slowing the necessarty adjustments and dragging the pain out. He could also undertake measures such as tax and regulatory reform that promote a more business friendly environment.

That, however, would not be the politically expedient path, and thus far Obama has shown that his talk of change, sacrifice and hard choices is little more than political bluster.

Perspective

"An economic crisis as deep and dire as any since the days of the Great Depression." -- Barack Obama

Really?

via Calafia Beach Pundit

Markets, Not Economists, Will Help the Economy

George Will:

Whatever else historians will say about Washington's response to today's crisis, they are not apt to say the government did too little. It certainly has not suffered the fate of Buridan's ass, the animal in a philosophic puzzle who, placed equidistant from two piles of hay, starved to death from indecision. Some Washingtonians can remember when the federal government first had a budget of $100 billion (1962); this year's decisiveness might contribute to a deficit next year of $1 trillion.

In his wise book "Capitalism, Democracy & Ralph's Pretty Good Grocery," John Mueller, an Ohio State political scientist, notes that John Maynard Keynes' central theme, according to his biographer Robert Skidelsky, was that "the state is wise and the market is stupid." Mueller continues: "Working from that sort of perspective, India's top economists for a generation supported policies of regulation and central control that failed abysmally -- leading one of them to lament recently, 'India's misfortune was to have brilliant economists.'"

Many of them were educated in Britain, by Keynes' followers. In America today, everyone agrees that the president-elect's economic team is composed of brilliant economists.

Lets hope these economists stand humble before the levers of power.

Government Sets Us Up for the Next Bust

John Stossel:

If an athlete injures himself and suffers great pain, we'd recognize the shortsightedness of giving him painkillers to keep him going. The pain might be masked, but at the risk of greater injury later.

That's a good analogy for the inflationary policies now pursued by Washington. These policies may temporarily "stimulate the economy," but they also disguise and aggravate the underlying problems. We will all pay a serious price.

This is correct. There are issues in the economy that need to be worked out. Government interference is only going to delay this process and make things worse. Read the entire column.