Reader Vijay pointed us to an op-ed today in the Washington Post by Don Luskin, “Quit Doling Out That Bad-Economy Line.” Some of its priceless wisdom:
Things today just aren’t that bad. Sure, there are trouble spots in the economy, as the government takeover of mortgage giants Fannie Mae and Freddie Mac, and jitters about Wall Street firm Lehman Brothers, amply demonstrate. And unemployment figures are up a bit, too. None of this, however, is cause for depression — or exaggerated Depression comparisons.
Overall, the pessimists are up against an insurmountable reality: In the last reported quarter, the U.S. economy grew at an annual rate of 3.3 percent, adjusted for inflation. That’s virtually the same as the 3.4 percent average growth rate since — yes — the Great Depression.
Luskin blames the negative perception of the economy first and foremost on Obama (no I am not making this up) rather than, say, mounting foreclosures. We are in the midst of the worst one-year decline in household wealth in US history, greater than took place in 1929. But Luskin thinks the citizenry is full of irrational gloomsters.
Vijay also provided a link to an assessment of Luskin’s track record at The Cunning Realist:
I got curious about Luskin’s own record. How’d he do on the subprime crash, one of the most important chapters in the history of financial markets? I took a look at his stuff from the past year to find out (note the dates, which are important). As I explain at the end of the post, there’s a special reason why Luskin’s calls deserve scrutiny:
April 27, 2007: This earnings season is especially sweet for me, and not just because I love to see bloviating blowhard bears on television make fools of themselves. …There virtually can’t be a recession on the horizon. The world is awash in financial liquidity. Anything that goes wrong — like the housing slowdown or the subprime mess — is easily absorbed by the massive amount of money available in the world.
June 29, 2007: Through the end of the year, it’s going to be great for stocks. With no contagion from subprime, and the Fed on the sidelines, there’s nothing to stop the economy from growing a lot faster than “moderately,” which means that corporate earnings are going to keep growing, too. So abstracting from the occasional correction here and there, stock prices should pretty much keep making new all-time highs through the end of the year…
December 28, 2007: Bearish expectations that lending will necessarily contract because of damaged bank capital structures suffer from a fallacy of static analysis…
As long as investors, businesses and consumers have good reasons to keep borrowing, I think that the banking system will continue to be fully able to keep lending.
What is remarkable is Luskin’s refusal to change his view in the face of new information, although in January he did issue a mea culpa.