Reverse economics

[babylonsister]

Warning: this could be too optimistic for some. ;)

http://www.chicagotribune.com/news/opinion/chi-0217edit1feb17,0,6160328.story

Reverse economics

February 17, 2009

snip//

Any recession is a cruel event, and this one may turn out worse than most. Many Americans are suffering, and their numbers are sure to rise in the coming months. But recessions are also an inevitable part of the economy, and they do end up being reversed. Since 1945, the average length of a downturn is 10 months. This one will not last forever, and growth may well resume this year.

Nor is it likely that the current crisis could turn into anything resembling the Great Depression. The Federal Reserve has acted quickly on a vast scale to prevent the brutal deflation that occurred in the 1930s. Bank deposits are insured, and people who lose their jobs can count on far more help than was available then, in the form of food stamps, unemployment insurance and welfare.

In some ways, the downturn may do the economy some long-run good. Like every recession, it has forced companies to cut costs and operate more efficiently, which will raise productivity. It has boosted the puny American savings rate. It has begun a transition away from overinvestment in housing, freeing capital for other sectors.

It has brought down inflated home prices. It has caused banks to exercise more care in lending, while discouraging Americans from resorting to credit to live beyond their means. But these changes are a big adjustment, and they won't happen without pain.

Some critics think it's dangerous for a president to make dire predictions, lest he spook consumers into hysteria. That fear is also greatly exaggerated. When major companies are filing for bankruptcy, the stock market is sliding and home values are falling, Americans feel poorer—because they are poorer—and nothing their leaders say is likely to have a big impact on their mood.

For the time being, the most important asset Americans have is patience, keeping in mind that bad as they are, things will eventually get better. Bankers and investors will tire of putting all their money in low-yield Treasury securities. Credit will thaw. Home prices will stabilize. Consumers will come out of their shells. Sales will pick up. Companies will dare to hire again.

Maybe the stimulus plan, which Obama plans to sign on Tuesday, will speed that process. Even skeptics must hope so. But the greater reason for optimism is the fundamental strength, flexibility and resilience of the American economy. It's down right now, but there is nothing irreversible about that.

[drmeow]

1. "Like every recession,

it has forced companies to cut costs and operate more efficiently, which will raise productivity."

Unfortunately they tend to cut costs in ways that hurt working people without touching the rich.

[PM Martin]

2. It seems that the US economy will

move back towards positive growth in quarter 1 2010.
Still, the growth will be lethargic.
1% growth is not much.