I find myself continually writing dour things about the U.S. economy. I can’t help it. I want to see green shoots and glimmers. I want things to be stabilizing. I hanker for the return of growth and other good economic tidings sometime later this year. I want to be happy and upbeat like Ben and Timmy, the gang on Wall Street, and those analysts who are endlessly surprised and delighted when their economic expectations are surpassed—which these days is almost always.
My problem is that I’m a prisoner of reality. Here’s reality. Almost nothing, in an economic sense, is actually getting better than it has been. Things are only getting worse slower then during the precipitous plunge that began last year. That’s not good news. It’s just less bad news.
But, one might say, isn’t less bad news a precursor of good news to come? Not necessarily. A slower economic decline could continue for some time. Worse, the present slower decline might just be a slightly less unpleasant pause before a still more precipitous plunge.
This is where my own thinking diverges so strongly from the currently prevalent notion that we’re just a few short months away from a rebound, a modest one to be sure, but a rebound nonetheless. I think that a second plunge if far more likely.
Consider what might precipitate another, even more nasty downward spiral. There’s first of all the things we’re reading about on a daily basis. Possible war in the Middle East. North Korea running amok. A mild flu pandemic some health experts worry could turn truly virulent this fall. There’s a lot of these things out there, bad in themselves, with potential for great economic destruction as well.
Then there’s those things we’re not reading about on a daily basis but with equally destructive, or even more destructive potential. Ecological disasters. Weather disasters like Katrina-style hurricanes. Massive earthquakes that can occur in surprising places—like the one that destroyed Lisbon in 1755, the huge one in New Madrid near what is now St. Louis in 1811 (the biggest ever in the continental U.S.), or the highly destructive quake centered near Philadelphia in 1737 that almost no one remembers. A red rust fungus called Ug99, now spreading from Africa to the Indian sub-continent, which experts think has the potential to destroy 80 percent of the world’s wheat crop, is also out there, and new strains of wheat that can resist this fungus could take a decade to develop.
Almost none of these disasters and their effects, or comparable disasters, can be predicted in advance, which is why they are rarely if ever included in economist predictions. They are the eternal surprises that could have devastating consequences for an economy—and they seem to happen eternally.
Of course, good surprises occur as well. So why focus on the bad ones now to suggest that they could not only prevent the start of an economic recovery by year’s end, but in fact may well do so? Two reasons. First, because looking around today, there seem far more bad things dangling out there than good ones. And more pertinent to this argument, because an economy like our own in bad health, like a patient with underlying health issues, is far less able to resist “the big one,” whatever that big one is, than a healthy economy.
This should be a very real worry when viewing our future economic prospects. If Obama and company can finesse world politics for another year or two, and if the very worst negative possibilities beyond human control that could occur don’t occur during that time, we might manage to climb out of our present economic doldrums. Otherwise…
We need a lot of political wisdom and even more luck in the days ahead. I hope for both. I just can’t quite believe in the possibility of either.