Pervasive Pollyannas of Prosperity
David Leonhardt discusses a few items today which are regular discussion points here at TBP. My favorite lately is why the public is so much gloomier than the pundits:
"Pundits have been scratching their heads about why the public mood is so grim. Last week, Barron’s called the drop in consumer confidence “difficult to figure.” A front-page headline in The Washington Post claimed, “We’re Gloomier Than the Economy.”
But are we really?
For the first time on record, an economic expansion seems to have just ended without most families having received a raise. For the first time on record, the typical home price nationwide is falling. The inflation-adjusted value of the Standard & Poor’s 500-stock index has dropped 20 percent in the last year — and 30 percent since its peak in 2000.
I think the public has called this issue exactly right: the American economy has some real problems. Even if this summer’s downturn turns out to be mild, those problems aren’t mild — or simple — and they aren’t going away anytime soon. It’s going to take some real work."
That's spot on.
Want some more evidence? In light of tomorrow's NFP data, consider the chart below: Its an updated version of a chart we have shown repeatedly, looking at this cycle's employment gains compared to prior, post WWII, business cycles:
We have heard longstanding charges of liberal media bias, going all the way back to Spiro Agnew's Nattering Nabobs of Negativism (September 11, 1970). Whatever validity that Trojan horse might have ever had has now
jumped the shark. Mass Media is owned by large corporate interests
(Disney, Viacom, News Corp, Time Warner, etc.). If anything, the disconnect between reality and the "Pervasive Pollyannas of Prosperity" has rendered moot William Safire's catchphrase.
Indeed, the bias is precisely the other way -- between reality and ideological absurdity.
Its the Lite Beer marketing syndrome: If your product is pisswater, and fattening to boot, you never admit that in your advertising. Instead, you frame the debate as whether it "tastes great or is less filling." Its jiu jitsu marketing, turning your liability into an advantage. The misdirection is often effective.
How absurd has the Panglossian cheerleading become? On my pal Larry Kudlow's show last night, several of Candide's descendants talked about how great stocks are if you hold them for 30 years. That's right, the holding period for equities according to this crowd is three decades. Of course, this means every pullback is a buying opportunity. Words such as these can only be spoken by someone who has never worked on a trading desk or managed assets professionally -- or if they did, they lost most of their clients' money.
Rather than address why the public is so unhappy, the triple Ps toss charges of bias. Ignore the worst monthly Auto Sales since 1992, ignore the latest signs of consumer distress (Starbucks closing 500 stores). And when that stops working, PPP starts discussing the long run, ignoring the trading wisdom of Keynes. Its yet more evidence of the pollution of economics with partisan politics. Fortunately for most of the Pervasive Pollyannas of Prosperity, they don't have to live off their market calls. Those who invest based on their "Never say recession" worldview best have another source of income. Fortunately, most of the public isn't so easily misled.
As noted earlier, we are overdue for as bounce today. But this short term market noise will not change our long held belief that we are in for a slow-motion slowdown. And merely wishing it were otherwise won't change the grim reality of the situation.
Are We Too Gloomy? (June 19, 2008)
Dispelling the Myths of Summer
NYT, July 2, 2008
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The "trading wisdom of Keynes" does not work.
Thanks for the great analysis.
Posted by: Victorian | Jul 2, 2008 8:02:58 AM
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