Let us now make one of our regular visits to Economist World, a distant world where California’s medical marijuana experiment has apparently become adopted as the everyday alternative to a morning mocha. In a column I wrote yesterday, I pointed out how utterly detached from the rest of us economists have become. And today a number of them, perhaps having stumbled upon a new bud of unusual merit, seemed intent on demonstrating this vast schism. One closely followed fellow at a leading economic organization was even quoted saying the latest Conference Board’s Index of Leading Indicators for June may show the recession has actually ended.
Not living in Economist World, and not even having access to any home grown, I found this assertion rather strange. Job losses, after all, continue to build up at an alarming rate. Home mortgage defaults continue to soar. Commercial properties are plunging toward their own precipice. Small businesses can’t get funding. State governments are becoming basket cases. The government’s TARP IG reported just today that the U.S. government (i.e. us taxpayers) are on the hook for $23 trillion in debt to bailout the financial industry.
Taken together, realities such as these did not appear to justify thinking the recession had moderated, much less ended. Not in this world anyway. But I wished to be fair. Maybe my own skepticism was due to not looking closely enough at the June report of leading indicators. So I took another look.
The Index has 10 components. Three were down while seven were up. The downers were a falling money supply, fewer capital goods orders, and diminished consumer expectations. Not good. But what about the uppers?
A longer factory workweek actually was a good thing. About the other “uppers” in this mix, however, I was more than a tad skeptical.
The rising stock market indicator, for example. The value of this as a true gauge justifying optimism might be judged from one of today’s big stock winners—Halliburton. It’s profit this quarter fell 48 percent. 48 percent! But since this “beat analyst expectations,” its stock price rose more than 4 percent for the day. If all stocks have to do these days is beat expectations of a few professional guessers who are being paid to under-guess, the stock market could rise forever. No real cause for optimism there.
So I moved on to another thing that led to the Index’ gain. Falling jobless claims. Losses were coming in at about 550,000 ln June compared to losses of about 625,000 the month before. But since between 100,000 and 200,000 new jobs must be created each month just to keep up with population growth, a loss of 550,000 a month would not seem like good news. Except, perhaps, in Economist world.
And then I came to the really big news in the June Index report. The thing that Economist World dwellers found truly encouraging. The spread between long- and short-term interest rates increased. There are a number of technical reasons why Economist Worlders might think this a good sign for the economy. But in our own world here’s what such an increased spread really means. The Fed, terrified that all its efforts to bring back a moribund economy are faltering, is keeping near-term rates near zero. While government bond buyers, scared witless that all of Washington’s panic spending will one day soon spawn a ruinous inflation, want some protection against this eventuality by demanding a higher return on longer term government paper. Who but an economist could like the resulting bigger spread?
You know, I really don’t like writing bad stuff about the economy. It makes me very unhappy. That’s why I’m envious of economists. I envy where their heads at at. I want to live in their world. I want to see all those happy things that their ratios and trend lines and indices allow them to see.
Pass the Economist World bong. Turn on the lava lamp. Beam me up, Scotty, Down here on earth its getting scary.