In Defense of the V

My favorite economist, Brian Wesbury, recently published an article, saying he has never seen as much emotion in economic debate as we have in recent years.


He says that people question his sanity or integrity for predicting an economic recovery. The responses fall into three groups.

1. Those who think debt drove the wealth creation of recent decades and until this debt unwinds nothing will be normal again. These commentators expect more shoes to fall.

2. Those who just can’t see a recovery if people are losing their jobs.

3. Those who look at all the government spending and money printing and think this will undermine growth and boost inflation to painful levels very soon.
   

In response, Wesbury admits that he failed to forecast the recession last year.

What we missed was how badly the government would mishandle otherwise manageable problems: a combination of mark-to-market accounting and ad hoc remedies, finally allowing Lehman Brothers to fail in September 2008. This set off a rare financial panic, the velocity of money plummeted, and economic activity collapsed.

Wesbury maintains that capitalism did not fail, it was government that failed. The government perhaps never better lived up to Groucho Marx’s maxim: “Politics is the art of looking for trouble, finding it, misdiagnosing it, and then misapplying the wrong remedies.”

Still you are never going to get Rep. Barney Frank, or other politicians who were overseeing the US banking system, to admit any guilt!!

Wesbury goes on to write, We expect the economy to rebound from the panic and make up for the loss of growth relatively quickly. This is hard for some people to comprehend because if you listen to the business news or read the popular press, the economy has basically stopped – had a heart attack – crashed – shut down.

But the system never shuts down. It may slow down, but as long as freedom exists, the system remains dynamic.

For example, in the past 26 weeks, roughly 16 million people filed initial claims for unemployment insurance. But, as of two weeks ago, there were only 6.816 million people continuing to receive claims. In other words, possibly as many as nine million people who might still be receiving benefits are not because they found gainful employment.

For all the blog articles I read every day (about 250 articles from 30 economic blogs), I do not recall anyone pointing out that we have had to have millions of people return to work after filing initial unemployment claims. All I see to read is the doom & gloom surrounding job loss.

Yes, it is true that the government has grown almost exponentially, and the Fed is super easy, too. But the problems with all of this are long-term in nature and probably not as bad as the most vocal critics believe.

We will pay a price for government growth, but that price is still at least a year or more away.

For now, a recovery is coming and it will be stronger than the conventional wisdom believes, partly because the Fed is so easy.