An optimistic view of today’s economy comes from Brian Wesbury and Robert Stein:
Back in May, before it became the conventional wisdom, we wrote that the US was in for another “soft patch” but the best course for investors was to ignore it (link to May 23 MMO).
At the time, we said the massive drop in production in Japan would cause business disruptions in the US, particularly in the manufacturing sector and for automakers more than anyone else. In addition, the wicked tornado season appeared to have postponed some home building. Our bottom-line was that these disruptions would be temporary. Any weakness in the second quarter, we thought, would be made up in the third and fourth quarters. …
The debate appears to be over and we say “hasta la vista, soft patch.” It’s over. That doesn’t mean there won’t be any more tepid data over the next few months. Real GDP growth in Q2 is going to be weak – and the pessimists will moan and cry about it for months. But more timely reports have already turned for the better. …
Shipments of “core” capital goods, which exclude defense and aircraft, were up 1.4% in May and up at a nearly 15% annual rate in the past three months.
In addition, housing starts increased 3.5% in May while building permits rose 8.2%. Permits are now 4.6% higher than a year ago. With the exception of late 2009 and early 2010, when that sector got a temporary boost from the homebuyer tax credit, this is the first time since early 2006 that permits have beaten year-ago levels.
The big report this week will be on employment for June, to be released early Friday morning. Private sector payrolls only expanded 83,000 in May. But, given the drop in unemployment claims, we think the job market re-accelerated in June.
Forbes.com columnist Brian Domitrovic could count as an optimist given that he sees economic growth as substandard — that is, economic growth of the 1980s:
In the long, quarter-century booms of the second half of the 20th century, the economy grew at 3.3% per year. This was precisely the rate of GDP expansion from 1945 to 1973 and 1982 to 2007.
But coming out of deep contractions, the rate of growth was a point higher, some 4.5% per year, for extended runs. 1947-1953, for example, a period following a steep GDP trough, growth averaged 4.6% per year. After the three Eisenhower recessions of 1953, 1957-58, and 1960, the JFK-LBJ years of 1961-1969 saw growth at 4.8% annually. And the Ronald Reagan “seven fat years” of 1982-1989, which put stagflation to pasture, had growth of 4.3% per year. …
In 2010, supposedly the first full year of recovery, the economy grew at a 2.9% rate. The comparable year of the Reagan recovery, 1984, saw two and a half times that number, 7.2%. …
I take a special interest in this question because one of my research concerns is why growth in the great runs of the 20th century was actually so – substandard. Booms in the 19th century – for example, 1875 to 1892 – saw growth sustained for decades at 5.3%. A growth rate of 5.3% means that in just twenty-five years, the economy is two-thirds larger than under a rate of 3.3%.
What was the secret to the outsized growth of the 19th century, particularly its latter portion, the Gilded Age? There were great technological innovations and large population increases, to be sure – but these things came in the 20th century as well. What was different back then was the absence of macroeconomic institutions.
There was no Federal Reserve, and there was no income tax – both would be created in 1913. Therefore, there were no instruments through which the government could conduct monetary or fiscal policy. Government’s role in shaping the economy was confined to regulating trade and enforcing contracts.
No wonder we had such an incredible boom. The funny thing about it was that whenever the great run flagged in the 19th century, it correlated with attempts to introduce monetary and fiscal policy. …
The fundamental lesson of American political economy since the halcyon days of the industrial revolution is that our economic greatness issues from the disinclination of the government to intervene in our monetary and fiscal affairs.
Two years ago, officials said, the worst recession since the Great Depression ended. The stumbling recovery has also proven to be the worst since the economic disaster of the 1930s.
Across a wide range of measures—employment growth, unemployment levels, bank lending, economic output, income growth, home prices and household expectations for financial well-being—the economy’s improvement since the recession’s end in June 2009 has been the worst, or one of the worst, since the government started tracking these trends after World War II.
In some ways the recovery is much like the 1991 and 2001 post-recession periods: All three are marked by gradual output growth rather than sharp snap-backs typical of earlier recoveries. But this recovery may remain lackluster for years, many economists say, because of heavy household debt, a financial system still damaged by the mortgage crisis, fragile confidence and a government with few good options for supporting growth.
Current policies have not stimulated business hiring. If job creation occurs at the same rate as in the 2003–2007 expansion, unemployment will not return to pre-recession levels until 2018. If job creation continues at the low rate of the past year, unemployment will remain permanently high. …
Even with strong economic growth, it will take time for unemployment to return to normal levels. If employers add an average of 260,000 net jobs per month—the rate the payroll survey showed during the late 1990s tech bubble—then unemployment will not return to its natural rate until August 2014.
If employers add 216,000 net new jobs per month—the rate the household survey showed in 1997, the year of the greatest job growth in the tech bubble—unemployment will return to its natural rate in October 2015.
These are optimistic assumptions. The late 1990s was a period of unusually strong economic growth. During the 2003–2007 expansion, employers added an average of 176,000 jobs per month. If the recovery takes that more recent pace, unemployment will not return to normal rates until January 2018. Matching the rate of job growth in the recovery from the last recession would mean Americans would wait seven years for unemployment to recover.
The problem is at the consumer level, confidence is low and that is because, as you showed, showed we had underemployment with one out of every six Americans. The worst element of that is that among the unemployed, against the American history, more than approaching half, have [been] unemployed for over six months. That is historically unprecedented in the United States. That is a phenomenon that is seen often in Europe, rarely seen here. In 2007 the average time to get a new job was five weeks. It’s now near six months. And that implies a whole segment of the population, the more elderly or the middle-aged who may never get employed again.
Taxing the “rich” (which we now means anyone who has more money than government employees) will not improve the economy, given that taxes subtract from the economy. (Even the Keynesians believe that.) Increasing government spending harms, not helps, the economy. We see that by the wonderful effect of the $787 billion “stimulus” package President Obama signed into law more than two years ago. Obama inherited a bad economy, but under his watch the economy has gotten worse.
Remember that a recession is when your neighbor loses his job; a depression is when you lose yours. Ronald Reagan said that recovery would take place when Jimmy Carter was added to the ranks of the unemployed. I’d love to have Barack Obama and all his apparatchiks added to the unemployment rolls, not to mention the Protestarama participants, merely out of principle. (The next time the state has a budget deficit, remember: Each state employee costs taxpayers on average $71,000 in salary and benefits.) But I don’t think that would help. In fact, I am thinking that the party currently in power in Washington and the party previously in power in Madison may have damaged our economy beyond human repair.
Steve Prestegard.com: The Presteblog 
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