Over the weekend, NDD posted an article titled, The Doomers Tell a Compelling Story... Until You Look At Their Record. He noted that despite continued prophecy of the end of times, their predictions have come up short on a regular basis for the last two years. This highlights one of the really annoying aspects of talking about the economy: it's a moving target and you have to let the numbers tell you where things are headed rather than thinking things are moving in X direction and finding data to support your claim.
Starting a little over two years ago, the economy started to grow as evidenced by the GDP report along with the regional manufacturing numbers. The doomers continued to talk of the coming end of the world. However, their prognostications became less frequent as the data emerged. They would triumphantly return when data turned bad, but would otherwise be silent. Now, however, that the economy is weakening, they have returned in force. But as NDD pointed out yesterday, they are essentially making the same arguments this year that they made last year, taking away from the potency of their argument.
But the doomers are not the only ones guilty of this type of short-sightedness. The perma-bulls were just as guilty as the economy slid into recession. At that time, talk of a recession indicated we were in a "mental recession," rather than a real recession. The constant drops in the market were in fact buying opportunities. The bursting of the housing housing bubble would have a limited impact and the damage from the financial fall-out would be contained. You get the idea.
The point of the previous two paragraphs is simple: the economy is a moving target. While there are many people who made their reputations by being negative, they have not changed their analysis as the economy rebounded. Hence, for the last two years, they have essentially become the children crying wolf, without realizing the continued prognostications for eminent demise make them look more and more out of touch. And indeed -- their argument started with, "it's only one number," to advance to massive conspiracy theories that the entire economic complex is a group of individual agencies who rig numbers at the behest of their corporate masters. And the perma-bulls who continually said "buy" looked incredibly stupid as the market dropped like a stone, continually telling the American public that stocks would never be this cheap again (only to buy see them drop another 200 points the next trading session). In short, anyone who continually has one opinion about the economy (bullish or bearish) is always going to miss half the story. More importantly, they're going to try and impose their version of reality over existing data, making their analysis laughable.
Let me put this another way: anyone who was a perma bull or perma bear for the last four years was wrong 50% of the time. Is that the person who you want to listen to on a regular basis?
Noted for May 23, 2013
13 minutes ago
10 comments:
People who read this regular blog knows exactly that they are echo chamber (bear/bull). Please keep on repeating their falsification for those who might be new to it and to keep on speaking. Remember a lie becomes the truth if you repeat it long enough and no one challenges it. Keep up the work.
Spartacus - I think actually the thing that almost all the econ doomers and permabulls miss is how oil is a fundamental limiter of our economy.
NDD has been one of the few econ bloggers on top of that very issue, and didn't miss it one bit. Earlier this year he was discussing how the high oil prices we were seeing was likely to cause significant economic damage (the question at that time was how much damage).
Now I would like it if NDD would pay attention to the fundamentals there - that we've been on an oil production plateau for 6 years and it's unlikely to ever increase, which means that any recovery we see is likely to be a partial recovery rather than a complete one, which means over the very long term the economy is in a slow but permanent state of decline (with up/down oscillations).
Anon at 9:55:
I appreciate your support. I think we diverge in how we see the "fundamantals" of the Oil choke collar playing out. Here's my discussion:
http://bonddad.blogspot.com/2011/05/how-oils-choke-hold-on-economy-will-end.html
I don't see permanent economic decline, but rather a marvelous concentration of the mind on wringing energy efficiency from other sources.
BTW, although our troll claimed I "failed to see the current downturn," in fact as of July we aren't in a downturn, just a slowdown in growth, and it is exactly what I said would happen by mideyear due to Oil prices and Washington idiocy when I made my forecast in January (I will admit that I failed to foresee the Japanese earthquake and tsunami. A complaint has been lodged with the crystal ball manufacturer).
NDD - I'd agree with you that in the long term we will, by sheer necessity, wring efficiency out. But it's not happening at any great scale today, and the timeframe for such a transition is maybe around 2 decades. In the meantime, we're probably in for a lot of this sort of oscillation: downturn followed by sputtering/partial recovery that then increases demand, causes an oil price spike, and another downturn. As you mentioned in a post a month or two back, your concern is that we won't even get back to pre-2008 level employment, etc. before the next downturn. It's exactly that dynamic that I think the oil bottleneck will cause.
After several rounds of that maybe some in Washington will get a clue.
I think Infrastructure could get us out, Infrastructure investment will help us to more efficiently use our current resources and help us migrate to new technologies more rapidly.
Of course with the current crop of Republicans, who scream socialism and big government spending when even a hurricane plows through the country, and Democrats who are too wimpy to stand up to them, that's not likely to happen any time soon.
Good write-up. There is a diary up today over at bonddad's old haunt, DKOS, that claims a double-dip recession is "upon us," when new data came out just yesterday further proving that a double-dip is less and less likely. The doomers won't be happy until everyone sips their conspiracy theory koolaid.
Anon at 2:32:
That diarist has suddenly discovered the ISM manufacturing index. In fact that index was at or near multidecade highs from December 2009 through April 2011. Want to know what he wrote about it then?
Nothing.
During the time that the ISM manufacturing index was soaring, he instead wrote:
In February 2010 recession was going to be renewed because money supply had shrunk. Recently money supply has grown sharply. for some reason it now isn't worth a mention.
In March 2010 recession was going to be renewed because there was a liquidity crisis. That didn't happen either.
In April 2010 recession was going to be renewed because banks weren't lending, saying: "Recently bank lending has been growing to a near 1 year high.... You would think that any economic recovery would start with business loans, but that is not happening. Without new borrowing the economy can't recover. Businesses won't build new factories and hire new workers."
In fact businesses did expand and did hire new workers. Further, recently money supply has been soaring. For some reason it now isn't worth a mention.
And in July 2010, recession was going to be renewed becuase of the crashing Baltic Dry Index, saying: "Before you have a finished product you have a commodity, and before that commodity becomes a finished product it has to be shipped to market. That's why the Baltic Dry Index is a leading indicator."
That didn't happen either. In fact, the Baltic Dry Index just made a 6 month high. For some reason it now isn't worth a mention.
Why did the ISM not matter then, but is crucial now? Why were money supply, bank lending, liquidity, or shipping rates critic before, but irrelevant now?
The only common thread is, "Recession will be renewed because ..." [fill in the blank].
At least the doomers are right 50% of the time. Could one say the same for CNBC?
Anon @ 16:07 -
Good point. Predictions by doomers and cheerleaders are worthless, but they don't change, so their audience just comes and goes.
The media, however, is all too willing to herd the masses off the next cliff. They are consistently wrong. You can do a lot worse with your investments than the exact opposite of what they advise.
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