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Friday, March 26, 2010

Boring Numbers

The Associated Press is reporting that economists believe the economy will not continue to pick up steam:

"Many economists, however, think the economy has slowed in the current quarter to about half the pace seen at the end of last year."

Why? Last year's growth came from manufacturing, not consumer demand (which weakened), restocking dwindling inventories from businesses who had let them lapse in the face of weakened demand for goods.

Like this:

Consumers stop spending --> businesses stop buying goods --> inventories go down --> factories occasionally get orders to restock the shelves --> small blips in production show up, but don't last (because consumers haven't started spending yet)

So? Sooo? So the unemployment is at 9.7%, not likely to change much, because the economy is forecasted to grow at only 2.5 - 3% next year, which isn't enough to pull us out of the bad effects of the recession. (I suppose the bad news will breathe new life into Super-Keynesian Paul "Spend, Baby, Spend" Krugman, who will argue afresh that this proves that the first stimulus wasn't enough.)

Oh well, on the economic debate goes. As actress Kate Beckinsale once quipped, "numbers are boring". Well, they are. And scary sometimes, too.


Rebecca said...

In the NYT, D. Brooks made the assertion that economic theory needs restructuring---or maybe just new theories. We just react to the the cycle---therefore, no progress is made. We just shampoo, rinse, repeat.
So, in the real first global recession of the digital age, how would a global economy respond, adjust, then progress? We have had massive govt intervention (surplus pkg) and business/consumers aren't responding the way traditional economists would predict.
We can no longer use past economic thinkers for economic development. If we do, the cycle will continue. Shampoo, rinse, repeat--until there isn't any free flowing market economy anymore---all will be prescriptive and pre determined. Past patterns of growth can no longer be predictions of future economic behavior. Anyone got a new plan?

Erik J. Larson said...

Yes, I'm in sympathy with these comments. I've argued before about the "physics envy" that many social scientists and economists seem to have; they want their disclipline to predict the future, just as we can tell when Haley's coment will be back, but of course they can't predict the future (there's research that suggests, actually, that experts can actually be worse at predicting the future than ordinary folks, because they pay more attention to theories than common sense observations). I'd put in this camp prognosticators about the future state of the weather, like the Global Warming proponents, too. (Saying this seems to offend people, like passing gas in church or something, which I can't figure out; isn't science about debate?).

Anyway, though it's not true that economists have a crystal ball, it's not necessary to be skeptical about every inference they make; if they say that they think the recovery will stagnate, and they give good reasons for why this might be so (consumer spending isn't picking up), we might take this for considered judgement. Such claims are not as "magical" as saying that the unemployment will be at 8.2% by 2011 because of work ready projects in 2008, and so on. It's just observing that consumers aren't spending!