Amity Shlaes Does Not Know What a Recession Is

“the real fun won’t begin until they start investigating his work on the 2000 Commodities Futures Modernization Act . . .”

let’s not forget the GLBA act he sponsored which repealed Glass-Stegall and caused this financial mess we’re supposedly not in.

A recession is NOT two consecutive quarters of GDP contraction.

Not to mention GDP is horribly inaccurate as a measure of economic growth, especially when government spending grows due to deficit financing.

We are now booming. With imports down and exports up they are revising growth higher. Of course when they use too low of an inflation rate in the calculation, we will never show negative growth.

What’s funny is that Shlaes maintains that some “vast media conspiracy” campaign to talk down the economy is making people feel overly pessimistic. As far as I can tell, the truth is that things are FAR worse than they appear through the lens of the MSM.

LEH is on its way out and soon. That much is painfully obvious. We don’t lose TWO of the largest investment banks in the world over the past six months unless the system is hopelessly broken.

If folks suddenly became aware of how bad things really are, then we would have some real problems on our hands. I think it’s nutty how complacent everyone has become in the face of complete and utter disaster.

If the “smart money” has been destroyed, then what’s to become of the rest of us?

One of Shlaes obsession is debunking the New Deal as a socialist scheme designed to make the elderly dependent on government hand-outs. For Shlaes, FDR is one of the great villains of the 20th century. You can read about it in her book, the name of which, I can’t be bothered to google.

Gramm and his family are some of the classic frauds of the last 40 years. While feeding at the public trough in Congress for over 30 years, he railed about big government. Then he became a lobbyist for big business under the guise of joining a think tank.

His wife is part of some right wing think tank, raking in bucks from big business. She was also on the see-no-evil Enron board of directors..

I’m sure they don’t see anything to whine about.

I really don’t like Obama; he’s a machine politician who got the nomination by pretending to be something new and latching onto a few catch phrases. If he gets off script, it’s clear doesn’t know issues. He’s bought and paid for by the big special interests, including Wall Street, and they will continue to run the country under him. For example, a recent LA Times article said:

“Records show that four out of Obama’s top five contributors are employees of financial industry giants – Goldman Sachs ($571,330), UBS AG ($364,806), JPMorgan Chase ($362,207) and Citigroup ($358,054).”

But, McCain continues to surround himself with people like Gramm and Carly Fiorina, whose success in running HP certainly qualifies her for a high post. He also continues to make statements that show he’s politically and factuallly clueless, like embracing the policies of a President with an approval rating in the 20’s: tax cuts for the rich during an economic downturn, not knowing the difference between Iran and Al Queda, etc.

We are doomed.

For me a recession is primarily when I work and produce more, but can afford less with what I get paid. Secondarily, a recession for me is when the value of my assets keeps going down in price for a prolonged period of time.

A severe recession for me is when there’s little or nothing that can be done to correct the two conditions listed above. Indeed, finding a higher paying job is harder than 2 years ago, getting a good price for your house is near impossible. And without much flexibility of choices, my 401(K) is 100% in money markets, @2.19%, while every stock fund in the plan is down YTD, and down double-digits since the peak. Not to mention the dreaded “I”-word – the Inflation. That too contributes to my “recessionary” state.

Don’t know for the rest of you, but for me personally this is a severe recession.

re: ‘can we truly have any sort of inflation and at the same time have “asset deflation”?’

Maybe not at the same time, but we can certainly be whipsawed by back-to-back steep periods of deflation and inflation.

The worst of both worlds, as it were.

Just happened to catch a History Channel program this afternoon on the fall of the Roman Empire and the subsequent onset of the Dark Ages. Now THAT was a recession. Only took a few centuries to get past that one.

Of course Gramm and Shlaes would probably opine that those Western Europeans were just whiners and it was really only a mental Dark Ages.

I guess the only bright spot was that the Eastern Empire “de-coupled”.

“I’m quite surprised Amity Shlaes would write something like this. I enjoyed The Greedy Hand and The Forgotten Man immensely, and I would think she would lend some perspective to the current financial debacle. Unfortunately, her piece is extremely thin or details and heavy on floating, airy politicking.”
Posted by: Chris Naaden | Jul 12, 2008 6:26:42 PM

Chris,

see if this:

http://www.cfr.org/bios/7536/?groupby=1&page=1&hide=1&id=7536

additional biographical background lessens your surprise.

this book: http://www.naomiklein.org/shock-doctrine provides a workable outline of what Schlaes’ cohorts are all about..

So where are the people that will defend Gramm.

I expect that over 80% of the US populace (aka whinners)knows that the economy is a mess and they are suffering . About 10% don’t have a clue what is going on. That leaves maybe 10% that would support bush/mccain as the ship slowly sinks into the depths. After all that 10% includes the few percent that have gotten rich over the last eight years and the few percent that are eagerly waiting on Armageddon. I wish I was kidding but a lot of these people have been in charge and we are just starting to see the results of their handy work.

algernon:

I don’t think your premise regarding numbers then vs. numbers now holds water. They’re apples and oranges.

I think TBP has been over this topic before. If I’m not mistaken, it was pretty much accepted (and logical) that the picture is bleaker if you use the same set of metrics for all time periods (if possible), and that the numbers that are currently released, regardless of measurement criteria, are fudged.

Thickly fudged.

algernon:

I don’t think your premise regarding numbers then vs. numbers now holds water. They’re apples and oranges.

I think TBP has been over this topic before. If I’m not mistaken, it was pretty much accepted (and logical) that the picture is bleaker if you use the same set of metrics for all time periods (if possible), and that the numbers that are currently released, regardless of measurement criteria, are fudged.

Thickly fudged.

“Expansion is the normal state of the economy” – I don’t think so. In order for expansion you must be selling more and meeting people’s needs. But once people’s needs are met, they don’t need any more, so there is (or should be)a subsequent dearth of demand.
American consumers have overdosed on debt, so they won’t be spending for a good long time.
They have bought overpriced homes that are now falling in price, so they are losing and walking away from their homes and the ability to buy again in the near future.

“If the “smart money” has been destroyed, then what’s to become of the rest of us?”

The smart money was actually really dumb. They lost sight of fundamentals and started thinking debt was as good as cash in a market full of fraud.

Pay off your debt as fast as you can, don’t go into new debt, have some emergency cash and some food storage and you should be fine.

Don’t knock storing food. How many banks have to go down before the FDIC is out of funds? In a time of worry, it is nice to know you can still feed the fam.

A question that no one has been able to answer to my satisfaction is this:

Why such newspapers like WAPO and NYT persist on adding (and keeping) neocons shills to their staff when this ideology is being thoroughly discredited by the fearsome of rascals called FACTS?

Shlaes obsession is making Deal as a social scheme designed to make elderly dependent on government. It`s really great step in economy

this book:
http://www.amazon.com/Restraint-Trade-Business-Competition-1918-1938/dp/0838753256/ref=sr_1_5?ie=UTF8&s=books&qid=1215946516&sr=8-5

by Butler Shaffer provides more realistic POV of the Post-War (WWI) era than Schlaes’ co-opted paen.

this, encapsulates: “What he finds is a business sector not only hostile to free markets but aggressively in favor of restrictions that would protect their interests. This, he finds, is the very source of the origins and development of the regulatory state.

The author chooses this period because it was a time when the entire relationship between American business and the federal government underwent dramatic upheaval. It was in this time that business forged a consensus about the scope and intensity of competition behavior that they would tolerate. This began to exhibit a disposition favoring collectivist authority over one another via government-backed enforcement agencies.

Free and unrestrained competition required more of them than they were willing to tolerate. It required constant innovation, a fight against falling prices, a continued effort to seek out new markets, and the willingness to subject their bottom line to consumer preferences for lower prices and better products. They saw the vibrancy of free enterprise as a threat to their firms and well being, so they used anti-business sentiment in politics to hamper the market in ways that would benefit them.”
http://blog.mises.org/archives/008273.asp

this short summary:
http://www.referenceforbusiness.com/encyclopedia/Res-Sec/Restraint-of-Trade.html
of the term, ‘Restraint of Trade’,should, readily, make one wonder whether the Sherman Antitrust Act of 1890 is dead letter law..

How about the history you don’t understand. The debate on big government is over. Once side believes government should play a role in socializing risk. The other believes it should socialize risk, but only for the rich. The small government crowd, the libertarians and the “Austrians” are politically marginalized.

Barry, can we truly have any sort of inflation and at the same time have “asset deflation”? To me, this is impossible. I know the destruction of debt is real, and with it has gone the so-called fictional capital it created – so without a money-debt-engine to drive it, how can there be any inflation?

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1. If rates go up and/or liquidity disappears, I am ready to bet that many players will be forced out of the system. Less competitors means less capacity. If capacity shrinks in a fast way you could easily end up with higher prices.

2. This cycle started with a glut of oil and many other commodities. It has been planned according to 20$ oil. For the last decade at least, when companies were deciding whether they should take on a project or not, it was based on 15% ROI. Since our entire economy depends on energy thus oil, this 15% implicitly assumed 20$ oil adjusted for inflation (2-3%) for the length of the project. Oil is now 140+$. Even if it drops and stabilizes at a new cost of production of 50$, new business models will need to do adjustments for this new reality. There is always a lag before a company admits that higher costs are here to stay; we’re just beginning to see companies price for this new reality.

3. A generation ago, USA was spending 5% of GDP on infrastrucutre, today it’s around 2%. Because of 30 years of total disregard for our infrastructure and a focus on hedonism and consumerism, our North Amercian infrastructure is in total disrepair. If the economy needs to be stimulated, it will be done through social infrastructure projects. Commodity prices will be supported by such activity and this cost will flow through the entire economy.

3. To understand the cost structure of the last decade, one needs to look at the income statements and balance sheets of firms. On the cost side, interest expense was falling because of falling rates, DD&A was falling because of lower investments, wages were dropping due to offshoring. Every freaking line in the expense line was dropping. Capital was extremely easy to get so companies were doing secondaries or taking on cheap debt while mispricing their product: telecom services, airline tickets…

If airlines and many other sectors cannot get easy money anymore, they WILL have to increase the price of their products to survive even if consumers can’t affrod it. There will be bankrupcies thus a reduction in capacity = higher prices.

Since expenses are on their way up, pricing will go up. If America gears itself towards exporting again, it will have to build itself up for this and that will increase DD&A. Higher interest rates will increase interest expense. Higher oil/commodity prices will change the shipping and warehousing dynamics (Goodbye just in time inventory?).

4. When the economy slows, government takes over to stimulate the economy. Government intervention is ALWAYS inflationary. It will take over the Fed printing money by creating jobs and offering all kinds of payments: SS, welfare…

5. The demographics are changing. Boomers are on the verge of retiring. Older people spend less on clothes, food… Even the well to do spend less on dsicretionary items as they age. Due to our obsession with youth, our economy is probably badly adapted to an ageing population. Due to at least a decade’s worth of misallocation of capital, there has probably been a lack of investment in sectors that will serve a big chunk of the ageing population over the next decade. As demand increases for these underserved sectors, prices will get pushed up until these sectors are well capitalized.

Barry,

As usual, your comment is clear, concise, and to the point.

Phil Gramm says you’re whining.

Barry,

As usual, your comment is clear, concise, and to the point.

Phil Gramm says you’re whining.

I believe a definition of Recession is in order. It is not a formula, unless one is insensitive “feel.” This recession began that feeling to me last August. For those who need a formula – they should not be in the public eye – at any level.
My feelings were not created by “looking back” they were created last August. Did it start then? I can only speak for myself – since economic conditions are “subjective.” On a National Level – Deep Spending by the Government – if not creating a super economy – then becomes over fueling an inefficient engine – which would be in decline.

Phil Gramm is living proof of National Decay. His statements are not all wrong.
We are a fat people, who satisfy our anxiety by purchasing tangible goods with out the responsibility of payment (credit) feeding an addiction to marketing brainwashing.

The Government needs formulas – and only as a minimum, to affect – current costs – in programs. Cost of Living numbers are lies – yet they become the % adjustments to these programs.

The best way to fix this problem is a very deep recession – that requires a definition of how we as a country can live – with real life economics – pay as you go – for example – living in the financial present.

And thanks for providing a link for something equally as objective as Naomi Klein, just to prove your point.
—————–

Good and bad points can be found with both liberals and conservatives. And she does bring up many good arguments.

Nothing is objective when you’re dealing with economics, that’s why we have these blogs that debate the state of the economy. That’s also why the economics theories keep on changing with each passing cycle.

Economists keep on trying to pin point *THE* key variable (which has been interest rates for the last 2 decades by the way).

Those with a little more brain power realize there’s more to it than one variable so they move on to econometrics and regression analysis.

Then they realize that the world is not linear but the math is too complicated for most to understand so they always fall back to the *THE* key variable.

So folks, what’s *THE* next key variable?

Chris,

this: “and I would think she would lend some perspective to the current financial debacle…” in your post, was what I was responding to.

I wasn’t, really, trying impute, to you, anything at all.

And, the referenced book, by Naomi Klein, was posited, as I said, merely for the Outline.

Past all that, I don’t really care if you think Schlaes is ‘conservative’ and Klein ‘liberal’, though, I’d suggest you lose that particular set of blinders, just that you Think.

Mark, understood, and I appreciate that. I’ll call off the dogs, too.

I was upset that Shlaes wasn’t more descriptive. If the famed Hoovervilles and shantytowns of the Depression don’t exist today, she should have said that. She makes the point that people were defaulting with 90 percent equity, which strikes me as anecdotal.

I see her point, though. I long for someone proclaiming something positive about the marketplace.

If going defensive or commodities or short or buying puts makes money, that’s a positive thing, and I wish Phil Gramm would have led in that direction; something concrete instead of whining. Access to commodities or going short or ETFs weren’t readily available to the average small investor (I think) back in the Depression, and since it is now, we should proclaim this access as something awesome, that can save my little cash hoard.

I’ve been posting about “fractional reserve lending”, “debt-Based Fiat” and the joke that is the FED for nearing two years, trying to digest retorts the likes of which the system is fine and has serverd us well over the years.

Austrians have warned that the initial inflation is politically palatable in the early and mid stages. I believe this is the “served well” period which is now over.

Winston’s comment on inflation certainly contains what on it’s face appears to be paradoxical.

If one considers the rotation of the “bubbles”, I believe the paradox disappears.

FED highjacks FFR after implosion that was the Tech Bust that decimated the previous decades retirement accounts. >> Artificially low rates catalyze Housing Boom

FED attempts mean rate reversion Housing Boom goes Bust. FED once again hijacks FFR
Commodity Boom ensues. Only the economy needs to expand for the cheap credit to perform in this environment and the funny money needs someplace to find yield or the Banks can not rebuild balance sheets. Enter consumables the last bastion of yield that is not discretionary. You can choose not to expand your business, your residence, your precious metal holdings, without diminishing your living standard appreciably. But you cannot likewise do the same for food and fuel not to mention the overall increase in the number of market participants which can be fleeced.

This is it folks the “end game”. This is the last sector to be successfully “inflated”. What happens next? Consensus points to some version of “Hyper-Inflation”. I believe this is perception created by those chasing yield in consumables driving prices for said consumables higher. This by strict definition is not inflation nor is it sustainable as we have experience with the Housing Debacle all things revert to the “mean” and men reversion is a “beatch”. It all goes to affordability.

Every asset class, save consumables, is in deflation, there is no expansion of money and credit. The expectation is competitive devaluation is losing international appeal. To debase further would dismantle the power that is the US. All things being equal deflation best supports the “elite” as now that the fleecing is finished its getting near (16-24 months) time to go shopping.

CUDOS to the poster on the GRAMM dismantling of protections in place since the last Great Depression. Hopefully this becomes common knowledge or he becomes marginalized to prevent just such an outing in the MSM. McCains “economic-warfare” expert, one down. Next to be outed Obama’s Robert Rubin. Two sides of the same coin colluding to fleece the public while attempting divert attention away from their “history”.

Isn’t Gramm the #2 guy at UBS, the Bank being investigated for enabling “elite clientele” to evade US Tax laws. Lets here more about what whiners we are—priceless

And the Marie Antoinette Award goes to the RightWing’s George Will.

This morning on ABC’s This Week, George Will staunchly defended Gramm’s comments:

WILL: Phil Gramm was right of course. Absolutely.

On two points. … We’re not in a recession as commonly defined. That is two consecutive quarters of negative growth.

STEPHANOPOULOS: We may be running there though. Even Bernanke says so.

WILL: We’re not however. Unemployment is just about the post-war average at 5.5 percent. His second point that we’re a nation of whiners: we are the crybabies of the western world. In fact, we have an extraordinarily low pain threshold.

~~

We have record high bankruptcies, record high home foreclosures, the largest inventory of unsold vacant homes in history, the savings rate went negative for the first time since the Great Depression, runaway fuel and food inflation, real wages for the vast majority of Americans going backwards since 2000, millions more jobless workers since 2000, the Unemployment Rate is likely 10%, Poverty increasing every year since 2000, the number of uninsured Americans rising every year since 2000, record high federal deficits and debt, large bank and investment bank failures, and the S&P 500 is off 30% in inflation-adjusted dollars from 2000.

Do RightWingers have genes from Bizarro World or WHAT ?
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Phil Gramm,if I’m remembering correctly, failed two grades in elementary school. He did go on to earn a doctorate in economics, but still not a brilliant mind representing the field of economics or much else.

McCain should rethink Gramm as treasury secretary; maybe publicly take his name off of any possible cabinet post. His mouth would send markets reeling every time it spoke.

The problem I see is the discussion is not even about the appropriate things. We are talking about people here. It is not gdp but gdp per capita that matters to people and that has been negative for a while. It is not jobs created or lost but jobs created or lost over population growth. It is not inflation but real wages that matter and have fallen. It is not about how wealthy we are but how much of it is disappearing in the market and real estate. When one doesn’t focus on the pertinent measures no wonder one ends up clueless.

The reason why Amity Schlaes doesn’t know what a recession is” is because she was an English major. She has no formal economic training.(From the Yale online directory)

Actually, at one point late in the primary, McCain flat out told a crowd we were in a recession, but that was before he was the nominee. He initially supported Gramm’s ridiculous comments and called him some sort of great modern day economist, until the backlash started. He also voted against the disastrous tax cuts for the Rich & Corporate before he back-tracked and is now for them.

Of course, Obama back-tracked on NAFTA, FISA, public financing, Iraq, and I’ve already forgotten what else.

YEESH.
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“Expansion is the normal state of the economy.”

In an economy which is 70% consumption and thus entirely out of balance with production, this is a sign of deterioration, not health.

Only if the economic balance of consumption and production is moving toward balance can such expansion offer a sign of health, since increased consumption without a concomitantly balanced increase in production steadily deducts from net national wealth rather than adding to it. Which is to say that declining real capital must be steadily replaced by credit as the erosion continues even as the economy is “growing”.

Eventually, of course, the important question is who holds ultimate claim to national wealth. If claims on that wealth and its productive capacity are moving out of domestic hands, then the economy gradually becomes an engine for profit which increasingly benefits others than those who are domestically engaged in producing that added wealth.

The “normal expansion” of a persistently out-of-balance economy based on perpetual inflationary policies by its government eventually produces a sharecropper society for its people, particularly when inflationary expansion of that economy becomes its “normal state”.

pudge,

“Barry: you are wrong.”

No he isn’t.

“‘Consecutive quarters of GDP decline’ is a perfectly reasonable definition … But that doesn’t make the definition wrong.”

No, but it doesn’t make it exclusive either. Both the NBER and Barry have pointed out that “two quarters of negative GDP” are not required to make a recession.

That’s all.

BTW:

“Granted, the NBER’s definition is widely respected and recognized, but it is not the only one, and it is not authoritative.”

At some point (?) the NBER actually did become the official arbiter of when recessions began and ended. So far, they have accurately reported when recessions began, and up until recently when they ended. I previously documented that they incorrectly called an end to the recession in the 3rd QTR 2001.
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VJ: ‘No, but it doesn’t make it exclusive either. Both the NBER and Barry have pointed out that “two quarters of negative GDP” are not required to make a recession.’

VJ, no, that is not what Barry said. Barry said that IS NOT a recession, and that a recession IS something else. What you are saying is not what he said: he did say the NBER’s definition is exclusively correct.

Barry is wrong.

“At some point (?) the NBER actually did become the official arbiter of when recessions began and ended.”

Nope. That never happened. Now, some departments, for some purposes, may officially recognize the NBER’s claims. But that does not make it official for me, for you, for Barry, or for Amity, or for every part of government.

“So far, they have accurately reported when recessions began …”

In your opinion, of course. I believe 2Q 2001 was much too late to mark the beginning of that recession. 1Q 2001 makes more sense, considering that is when we first had the significant GDP contraction, even if the lagging indicators didn’t show up until later.

“… and up until recently when they ended. I previously documented that they incorrectly called an end to the recession in the 3rd QTR 2001.”

It is not “incorrect.” It is an opinion. There is no correct or incorrect. For it to be “incorrect” there would have to be a set definition, and, of course, there is not.

And what is your opinion of when it ended?

winslow: so you do not listen to Obama or Kerry or Gore or … ? Maybe you don’t, but I just hope you’re being consistent.

The taxpayers that are bailing out the investment bankers would like to know if anybody in Congress knows what the GLASS-STEAGALL ACT is? It was highly lobbyied and then repealed because they didn’t want to separate the Commercial Banks from the Investment Banks. So drag the working people down with the elitists. Then we’ll see who the biggest whiners are. At least the working class knows how to work. The elitists just live off of us like a bunch of lice and once the working class is dead, who will do the work? If they can’t answer that question, they have a problem. Looking forward to hearing an answer.
Yours truly, Disgusted Middleclass Taxpayer, LaVern Isely