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:
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Chart courtesy of Spencer England Economic Research (SEER)
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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.
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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.
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Previously:
Are We Too Gloomy? (June 19, 2008)
http://bigpicture.typepad.com/comments/2008/06/are-we-too-gloo.html
Source:
Dispelling the Myths of Summer
DAVID LEONHARDT
NYT, July 2, 2008
http://www.nytimes.com/2008/07/02/business/02leonhardt.html
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Wednesday, July 02, 2008 | 07:52 AM | Permalink
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Comments
Barry:
The "trading wisdom of Keynes" does not work.
Thanks for the great analysis.
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BR: Fixed
http://www.bartleby.com/66/8/32508.html
Posted by: Victorian | Jul 2, 2008 8:02:58 AM
DUDE!!!!
You just killed Luskin...
Posted by: SINGER | Jul 2, 2008 8:18:29 AM
On Monday 6/30 I heard the guest host on the Hannity radio show telling the audience what a great economy we have and how $4 gas isn't hurting him!
If it wasn't for the stimulist checks, retail and would be worse than it is...and believe me I sell to small retailers...clothes/accessories...and business is punk. Sure it has been "ok" since the checks hit but what about before & after the "free" money.
Posted by: alex | Jul 2, 2008 8:28:26 AM
Barry-
I'll go long if they can promise me I have 30 years left. Would be a good deal for my two girls even if I ended up with zero. Let me know if there are any takers in that crowd.
Posted by: MarkM | Jul 2, 2008 8:35:53 AM
Barry, are there any CREDIBLE people seeing a light at the end of the tunnel? I'm in the Raleigh area, just starting to see my house lose value (I was thinking we were going to dodge that bullet, in our area, because our houses are not so overvalued and we have a net influx of people). I'm soon to be laid off. My dollars in savings are approaching worthless. Will an Obama win (and potential fixing of the Iraq situation) be enough to create growth again?
BTW: Leonhardt's article is indeed a good read. I think the US still has the best Institutes of higher learning, by a long shot, but NCLB and housing woes are surely decimating primary and secondary education.
Posted by: tom B | Jul 2, 2008 8:38:06 AM
Like it, Barry. Like it!
Posted by: Melancholy Korean | Jul 2, 2008 8:39:11 AM
BR glowed:
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.
reply: Sorry, it's going to rain. Earnings might help out a little because it's a sure bet that most analyst estimates will be beat. The oil ponzis are going to let oil stagnate in price for a few days and maybe let it fall to the high/mid $130 range. This will generate a little market enthusiasm. Then, voila, the ponzis will strike, oil will rise to the high $140 range and kill everything in sight.
That being said, buying in now and on the dips is like planting seeds for harvest. I'm in 25% and will likely go in after the 4th another 25%. Then I will sell the rise. The best rise will occur when Congress fixes oil. The other will occur periodically for a while if Congress does not fix oil, and will bring in only few percent on the ponzi plays.
Not fixing oil will not only kill the market, it will disinfect it, toss it in a hefty bag, and send it off to the landfill.
Posted by: cinefoz | Jul 2, 2008 8:39:46 AM
The PPP (Pervasive Pollyannas of Prosperity) have some clever tricks they've learned over time. For example, if you speak negatively, you are the problem: the "campaign" is what's "hurting" the economy. It couldn't be the Bush tax cuts since it's a fact of physics that tax cuts always create prosperity... Remember? deficits don't matter...
Once the PPPer's got the basics, then they grab the heated kettle by the forearms to become the Shaolin monks of confirmation bias.
Posted by: VennData | Jul 2, 2008 8:49:42 AM
Good points!
No raises for the middle class, $4 gas and their #1 retirement hope, houses, dropping for the first time since the great depression. Again, the increasing class split in America is becoming evident: what is disaster for so many people is no problem at all for others.
Posted by: wally | Jul 2, 2008 8:49:47 AM
Bravo, Barry!!
I think one of the big myths about this downturn is that our problems are cyclical. But as Leonhardt shows (and so do you in that graph on job growth), the problems we have are fundamental, masked to some extent by short-term issues.
Consumers do get it. Consumer confidence measures never reached the highs of the 1990s in this cycle, even when GDP was rising 7%. Why? Because almost all the benefits went to the very wealthy.
Posted by: rex | Jul 2, 2008 9:02:04 AM
There are a lot of right wingers who buy every word of it. They believe that there's only good when a republican is in the white house and any bad news is made up by democrats and liberals out of jealousy.
I have two brothers who think things are much better than they really are and think everyones votes based on the candidates views regarding abortion and stem cell research. They have a lot of talk radio hosts to back up their claims.
Posted by: charlie | Jul 2, 2008 9:03:31 AM
The Nikkei is today at 13,286. Should it rise 10% per year going forward then it will reach its 1990 peak of 38,916 around 2019. That’s three decades lost. Of course there has been and will be dividends. But if you inflation adjust we could be talking about four or five decades lost.
I have never seen so many people look at history and charts for precedence and guidance as we fumble our way into the unknown. The example of Japan, the world’s second largest economy and once the envy of the world, is part of history too.
Looking for guidance about the future health of a heavy eater/smoker/drinker based on his history of staying alive for decades against all odds is not wise. Looking at what has happened in similar though not identical cases may offer better clues. Using common sense analysis may offer superior clues.
Common sense tells me this will be slow and painful or quick and near-lethal.
Posted by: Michael M | Jul 2, 2008 9:03:39 AM
Starbucks adding more stores is a latte news for the stock! Starbucks closing stores is more bucks for the street! How pathetic/irrational markets have become. I will buy the stock when it goes to $8-10 range. Might as well, spend a few bucks on the grande stock.
When they start paying anaysts and economists -- $12 an hour -- data-entry pays -- they will start seeing the reality much better.
Posted by: Nihilism | Jul 2, 2008 9:07:55 AM
I get a gag reflex every time Don L. opens his mouth on Kudlow!!!!
Posted by: gunthestops | Jul 2, 2008 9:08:51 AM
Congress fix oil? Congress couldnt fix your pet. What is he talking about? What planet pray tell?
Posted by: catman | Jul 2, 2008 9:09:41 AM
Barry,
I was hoping that 'lost most of their clients' money' link was to Luskin's enormous failure. He is a total hack, and I don't know how the hell he gets ANY facetime on tv anymore. Next time you're on with him, please remind him that the Great Depression happened within the last 100 years and that his failure was not just attributable to bad luck.
Posted by: Danny | Jul 2, 2008 9:11:52 AM
Congress fix oil? Congress couldnt fix your pet. What is he talking about? What planet pray tell?
Posted by: catman | Jul 2, 2008 9:09:41 AM
reply: My hope is that the same logic that a thousand million monkeys at typewriters will eventually produce Shakespeare will work in less time than science would predict. Call me an optimist. They claim to be thinking about considering having serious meetings on the subject and have recently talked about it in the past.
Posted by: cinefoz | Jul 2, 2008 9:17:54 AM
How can the publics mood be upbeat while watching the "campaign". McCain is in Columbia (for some reason known only to him)this week and Obama is discussing his patriotism and home loan. Meanwhile, our airlines are technically bankrupt, our automakers are technically bankrupt, finacial firms are shedding jobs right and left, corn is $7.00 a bushel and gas is over $4. Did I mention an unending war that has cost us 800 billion? If we are not dealiong with these issues the rational person cannot be upbeat and a gradual slowdown will continue ad infiitum.
Posted by: larster | Jul 2, 2008 9:27:58 AM
Last week, Barron’s called the drop in consumer confidence “difficult to figure.”
This sentence speaks volumes.
My gut is this type of sentiment represents direct evidence that the reporter/writer/publication has their thumb on the butcher's scale. They are emotionally and financially invested in a bullish economic environment (all sunshine and rainbows); and if their readers and interviewees and data sources all say otherwise then their readers and interviewees and data must, of course, be wrong.
This is High Dogmatism.
Posted by: Douglas Watts | Jul 2, 2008 9:30:49 AM
Or might I suggest:
The Doctrine of Bullish Infallibility
Posted by: Douglas Watts | Jul 2, 2008 9:34:17 AM
Or ...
A Pony in Every Portfolio
Posted by: Douglas Watts | Jul 2, 2008 9:37:01 AM
These are good points but I think the dynamic is this: the banks are panicking; Bernanke's pulling out all the stops to support the impression that they're solvent. The bond and stock markets are now on a knife's edge and teetering. The media outlets are entirely controlled by corporate interests. Government reporting agencies, a wholly owned subsidiary of their corporate counterparts, are spitting out curious examples of legerdemain in the form of BLS and CPI statistics that are as credible as the largest ratings agencies' AAA-rated financial instruments.
What has brought us here is thirty years of conservative laissez-faire, deregulated, labor-hobbling, consumer-deceiving, creative-accounting, global-trading, CEO wallet-padding, tax-cuts-for-people-who-don't-need-them-pushing, payroll-cutting, debt-peonage creating, oligarchical corporate-government creating shambles of an economy. It's killed our greatest asset: the middle class. It's been every bit as doctrinaire and orthodox and inflexible as Lenin's economic pronouncements, and what their kindred spirits share is basically a lack of imagination and an incomprehensible blindness in the presence of contradictory information.
The worthies on Wall Street and in the halls of congress, and the big-haired jibberjabbers on CNBC and other outlets have overseen the slow-motion train wreck for years now. But the middle class is going down, and the middle class is going to take everyone, everyone down with them.
The reason that they're bewildered is that they're towing the company line, as usual, and that they're insulated by so many layers of jingling adipose tissue that they can't see how $4/gal is crushing people. Bernanke and Paulson know. They're scared to death.
They're just trying to drag this out until after the election so they can blame someone or something other than their ruinous policies.
Posted by: Jay | Jul 2, 2008 9:46:35 AM
BR: You hit the nail on the head.
"Its yet more evidence of the pollution of economics with partisan politics."
Let's not kid ourselves it's always been there but over the last ten years it seems to have moved into a whole new realm. It's just another expression of the disconnect from reality that Doctorow was talking about in that piece you linked to yesterday. Twenty years ago in these circumstances politicians and pundits would of course seek to assign blame to the opposing party but there wasn't usually a lot of debate about the facts of what was actually happening. Now people on the right who can see another wheel coming off the conservative bus (three have gone already:foreign policy, management competence, fiscal prudence) can hardly blame the democrats since they themselves have effectively been in charge for eight years and so they have to deny it's happening at all. How appropriate that Kudlow a leading conservative economic shill should have has his most frequent guests Luskin who lost millions for his clients and Laffer whose economic theory is not even taken seriously by conservative economists.
Posted by: John | Jul 2, 2008 9:47:47 AM
"I think one of the big myths about this downturn is that our problems are cyclical."
That's something I've alway puzzled over. How much of the dot com run-up was just baby boomers discovering the stock market for the first time? Is the Dow influenced more by, say, demographics than structural growth?
As for the US's long term prospects: It worries me that that we now see high-end jobs (science, engineering) going overseas. I think it's a fad, not a trend (who wants to live in China, no matter HOW low the cost of living?), but who knows? As a science/engineering type person, though, I gotta say doing something easier like business looks to me like what I should have done. R&D investment is way less attractive to business these days than stock buy-backs and pumping up products with more advertising.
Posted by: tom B | Jul 2, 2008 10:01:41 AM
" "Its yet more evidence of the pollution of economics with partisan politics."
Let's not kid ourselves it's always been there but over the last ten years it seems to have moved into a whole new realm. It's just another expression of the disconnect from reality"
Reality tends to assert itself. The ice caps ARE melting. Oil supplies ARE diminishing. There's only so much arable land to support Corn ethanol. Man did not appear in a puff of smoke in the Garden of Eden 6000 years ago. Abstinence-only sex ed does not lead to abstinence. House prices can NOT go up forever in the absence of commensurate wage growth.
Posted by: tom B | Jul 2, 2008 10:07:59 AM
