LAS VEGAS, Nev. — If there was one drag on the economy that wasn’t factored into official recession statistics, it would have to be the relentless media and political drama about the “Great Recession.”
NBC economics correspondent Mike Jensen scolded much of the mainstream media Wednesday for its hysterical comparison of the recent recession to the Great Depression of the 1930s in historical stature.
“There has been a tremendous amount of exaggeration of the recession by politicians and the media,” Jensen told attendees of the International LCT Show at the convention complex between the Palazzo/Venetian Resort Hotels/Casinos. “Several myths have [cropped] up.”
Jensen used the opening critique to segue into a list of media myths and realities as part of a comprehensible economic presentation that avoided ideology and relied on facts to outline short, medium, and long-term outlooks. He emphasized that he speaks in “probabilities,” not certainties.
Myths & Realities:
Myth No. 1: The recession is so terrible, that it’s just short of a Great Depression
Reality: “We weren’t even close,” Jensen said. “They’re not even in the same galaxy.” Unemployment was 25% during the Great Depression, instead of the 10% now, he said. What’s more, the U.S. had no social safety net in the 1930s.
Myth No. 2: Unemployment is the best indicator of how the economy is doing.
Reality: Unemployment is a lagging indicator, Jensen said. It can get worse as other economic variables get better. Companies lay off, take a breath, boost workloads, add temps, and then finally hire more full-time workers.
Myth No. 3: When the stock market goes up, all is well.
Reality: A stock market starts a recovery well before the general economy does. The daily juxtaposition of market closings and job numbers leads to economic whiplash, he said.
Myth No. 4: Banks are either failing or on life support.
Reality: There have been 162 bank failures in the last two years, compared to 9,000 during the 1930s when there was no Federal Deposit Insurance Corp. Banks look like a solid rock, compared to those during the Great Depression, he said.
The media is rife with such inaccuracies, Jensen said. “The media love bad news. You have to look at this stuff very carefully and take a step back from the headlines, the cable talk, and the politicians.”
Jensen also discouraged listening to politicians and cable talk shouters, whether it is Glenn Beck on the right or Keith Olbermann on the left. “I don’t listen to any politicians, whether it is Nancy Pelosi or John Boehner.”
The U.S. avoided another Depression through the fast financial actions of the Bush and Obama administrations, Jensen said. “The patient was rushed to the E.R. and is now stabilized in the recovery room.” The $13 trillion in tax dollars loaned, funded, or promised has pulled the economy back from the edge, he said.
He predicted the economy will take about four years to recover before it reaches its previous market cycle peak again. “The economy is on its way up, but it will be a tough slog.”
That means: Low inflation will keep interest rates low, which should prevent a chokehold on any recovery. Third quarter 2009 GDP growth was 2.2%, and likely to be 4.5% for 4Q 2009. Housing will take the longest to recover given the downward pressure of foreclosures and overbuilt inventory. Unemployment likely will reach 10.2% before trending down toward 9.8% in December 2010; a recent survey shows 29% of employers plan to hire this year, while 28% plan to fire.
In assessing short, medium, and long-term outlooks, Jensen said he relies on Wall Street and banking sector economists because they are closest to the action and “put their money where there mouth is.” He also checks in with business men and women to get the boots-on-the-ground look at the economy.
Short term outlook (years):
The recession ended in the third quarter of 2009 and should yield a modest recovery of about 3% GDP growth in 2010. It will be a good year to once again consider buying cars, computers, flat screen TVs, etc. With crude oil prices down about 50% from the peak in the summer of 2008, Americans are enjoying the equivalent of a $600 billion price cut. The stimulus package will take some time to play out, but the fact it is still two-thirds unspent is good, since the economy performs better when receiving “an intravenous drip.” It will take another two years before the economy becomes robust, creating on average 200,000 jobs per month — enough to make up for losses and add jobs for newcomers. Corporate profits should rise 25% this year, with the stock market growing about 9-10%.
But with trillions of dollars in debt moving into the economy, the U.S. will eventually have to “pay the piper,” and shore up the debt. The chance of a double dip recession is 20%, and the likelihood of a Great Depression is zero, Jensen said. The U.S. has begun the “comeback curve” of a U-shaped recovery.
Medium term outlook (decade):
There will need to be much more work done to get the U.S. to live within its means. Once the recovery has taken root, there will be fights over taxation and budgets, a possible pay-as-you-go policy in Congress, higher limits on income subjected to Social Security and Medicare taxes, and an extension of the retirement age.
Overall, the U.S. economy will still be the world leader, but not the 800-pound gorilla as the U.S. enters what Jensen calls, quoting journalist and author Fareed Zakaria of Newsweek, the “post-American world” — the U.S. remains a major power, but other nations catch up economically: China, India, Russia, and Brazil, in particular.
Long-term outlook (first-half century):
What has worked for American before in times of crisis, will work again over the next few decades: “We have a social and government structure that gives us not only incentives, but the freedom to innovate,” Jensen said. The combination of personal, economic, and enterprise (creative) freedom fuels the U.S. economic engine “that refuses to stay down.”
Jensen reminded the audience that America was supposed to succumb to previous challenges, but never did: the energy crisis of the 1970s, the ascendance of Japan in the 1980s, and technology crash of the 1990s/2000s. Instead, the economy “survived and prospered.” America’s strengths lie in its raw materials, capital, skilled workers, managerial talent, technology, quality of higher education, stable government, meritocracy, and problem-solving abilities.
“The long term future of the U.S. economy is not in jeopardy,” Jensen said. “It is shining very brightly.”
Source: Martin Romjue, LCT Magazine