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Will the economy ever recover? It always has

August 08, 2010

There's a reason that entire websites are devoted to economist jokes. And why no one makes more fun of economists than economists themselves.

I can't think of any other field where smart, respected practitioners are so often at complete odds. It is no work at all to find an economist who believes that our economy will be doomed if we continue this high rate of government spending. Nor is it any trouble to find an economist who believes that our economy will be doomed if government doesn't spend more.

My own view is that the wrong profession is in charge of analyzing the economy. Instead of economists, we ought to be using psychiatrists.

At some point the collective American psyche - both business and consumer - will wake up and conclude that the worst is over and decide that it is no longer scared to spend money.

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At what point, or why, this occurs is anyone's guess, but a psychiatrist would have a far better shot of figuring it out than a pure numbers guy. The economy, in some ways, is less of a figure than it is a feeling.

When asked, during a particularly wet spell, if he thought it would ever stop raining, Mark Twain replied, "It always has."

And so far, our economy has always rebounded from whatever the bureaucrats or financiers or Wall Street swindlers have thrown at it.

Because of this alone, I'm reluctant to buy into all the doomsday scenarios floating around out there at the moment - inflation, deflation, stagflation, dogs and cats living together.

Of course economists are paid to sit around all day and think up all the bad stuff that could possibly happen, and they are bound to hit on some real night terrors.

Nor do I rule out political motivations for the gloom. Massive government deficits never seem to be cause for concern when a Republican is in the White House, be it Ronald Reagan or George W. Bush. It's only when a Democrat is in the office that deficits become not only a source of economic devastation but a living, breathing pathway to socialism.

As much as Tea Partiers like to tell you they are all about fighting government spending and that they despised Bush for his record deficits as well, we heard nary a peep from any of them on the matter until President Obama came to the fore.

Even so, it's true that there are some real plausible sounding roadmaps to our own downfall floating around at the moment. Maybe one of them is correct.

But it wasn't so very long ago that forecasters - many of them the same forecasters who are now saying that all is lost - were celebrating the fact that America had slain every last economic dragon there was, and that economic downturns, inflation and unemployment were archaic oddities that were about to be committed to the history books.

When good times are rolling, warning signs are easy to miss.

When private equity firms were, with massive amounts of borrowed money, eating up public corporations Pac Man style, I wondered whether liquidity for the average borrower would ever be an issue. Writing about First Data in early 2007, I said, "It's obviously a bit melodramatic to say that one day you might not be able to get a home loan" because of all the advanced-finance hocus pocus. I was wrong. It wasn't melodramatic at all.

Concern over government borrowing is fair enough, but we need to consider that it was private borrowing that got us into this pickle in the first place - and initiated the need for publicly borrowed stimulus dollars.

One lesson here is to never underestimate our penchant for economic self-abuse. Or as Alan Greenspan said, he was under the incorrect impression that the market manipulators had some sort of inherent self-preservation mechanism built into their systems.

But the other, more meaningful lesson is this: There is something hard wired into our brains that (inaccurately) makes us think that things will always be the same as they are today. When the economy was good, no one could see how it would ever be bad again. Now that it's bad, no one thinks it will ever be good. Disaster lurks behind every tree. The left warns of perpetually high unemployment; the right warns of a bond-market crash.

Maybe. Or maybe things will play out Mark Twain style, as they always have in the past. We'll dig our way out, eventually. It always takes a bit longer than we think it should. And the longer we have overindulged, the longer the recovery will take to gather steam. In two or three years, everything will be back to normal and we'll look back and wonder what all the fuss was about.

Of course that's just a guess of what's to come; any economist is free to try to prove me wrong.

Tim Rowland is a Herald-Mail columnist.

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