An unlikely, man-bites-dog story recently appeared on Page One of one of our nation's most liberal newspapers that said the U.S. economy is not as bad as people think.
The Washington Post,
a left-leaning newspaper that persistently paints a gloomy picture of
the country's economy, even before its descent into the subprime
debacle, underwent a conversion of sorts last week. It decided to take
a fresh look at the fundamentals of our economy and concluded that
comparisons to past recessions and depressions were exaggerated, if not
Readers of this column know that I have long railed against the
gloom-and-doomers, while championing our economy's inexhaustible
resilience, self-confidence and competitive spirit and its ability to
recover against any and all challenges.
That's why Washington Post reporter Neil Irwin's
story last Wednesday came as a breath of fresh air - a gutsy,
against-the-grain reexamination of the No. 1 election issue in the
country that puts the numbers into a sharper and more honest context.
Under the headline, "Why we're gloomier than the economy," Mr. Irwin
ridicules the sky-is-falling view held by most Americans that the
economy is "not just bad, it is run-for-the-hills terrible."
The polling numbers on consumer confidence surveys are now the
lowest in three decades. Gallup's surveys find Americans who think the
economy is getting worse has risen to 87 percent. Liberal Democrats,
Wall Street critics of the administration and economic bloggers on the
Internet routinely make comparisons to the Great Depression.
"But the reality is different. According to the most broad measures
of how the economy is doing, it's not all that grim," Mr. Irwin states
flatly. He's right.
Yes, the economy is soft. Yes, the growth rate has slowed. Yes, the
financial markets have been rattled by the housing and credit crunch,
and the spike in oil and gas prices.
But with everything that has been thrown at it - the subprime
housing collapse, the subsequent credit crunch, skyrocketing oil prices
and record fuel costs at the pump - this economy is holding up much
better than it has in previous recessions. Unemployment remains
historically low by most measures (far below past recessions) and, all
but overlooked by critics, the economy is still growing by nearly 1
percent in the first quarter.
To make any serious comparisons with the Great Depression in the
1930s, when more than one-third of the work force was unemployed and
the economy was shrinking, is patently absurd. As for any comparisons
to recent recessions, one need go back to the spring of 1980 when Jimmy
Carter's economy was heading south and the unemployment rate has risen
to 7.5 percent and inflation was 14.4 percent. The national jobless
rate today is 5.5 percent (between 4 percent and 5 percent in many
states) and inflation is at 4.2 percent, with the core rate (minus
volatile energy and food prices) at less than 2 percent.
A chief factor making Americans much more pessimistic about the
economy is the decline in housing values. That has fed fear that as
their relative net worth has declined, so will overall consumer
spending which accounts for two-thirds of the economy.
But it doesn't affect it at all, according to a study by Wellesley
College economist Karl E. Case who compared spending habits with
changes in housing values. Homeowners, feeling wealthier, will spend
more as those values rise, but they don't spend less when they fall.
Wall Street economists David Malpass, is a realist with an
optimistic outlook who sees economic problems ahead of us but also
opportunities for growth. He worries about inflation through 2009, even
if the dollar rises. The impact of tax increases on labor, dividends,
capital gains, inheritance and the alternative minimum tax that are due
to expire in 2010 are a huge concern, too.
Still, Mr. Malpass foresees "a reasonably solid global expansion in
2009," noting the U.S. economy "has an underlying sturdiness" because
it is "driven by small businesses and a flexible labor force. He thinks
"the current rebound will have legs and the heavy investments made
globally in recent years will pay off." How much of a rebound? Expect 1
percent to 2 percent growth in the second quarter and 3 percent in the
second half of the year.
But right now, Neil Irwin's excellent article notwithstanding,
Americans remain as gloomy as ever. That mood is unlikely to change
soon as long as oil and gas prices keep rising and the Democrats
continue to block Republican proposals to produce our way out of this
Obama Democrats still think Americans oppose drilling for more oil
in offshore fields and in wilderness areas and that they blame U.S. oil
companies for higher gas prices. But Americans know better. The latest
Gallup poll finds that they support such drilling by 57 percent to 41
percent and those who blame big oil has plunged from 34 percent to 20