Um, Yeah. It Is a Recession.

It was obvious to anybody paying attention that we were entering a recession back at the beginning of the year. Anybody except the conservatives, of course, who maintained that it was all a big media conspiracy to make Bush look bad.

Here's Ezzie, who likes to claim I don't understand economics, in January of this year:

A great piece in today's Wall Street Journal discussing why the chances of a recession are extremely low, and showing just how well the economy is actually doing.

Excerpt from the piece, which is called -- I'm not kidding -- "The Economy Is Fine (Really)" :

It is hard to imagine any time in history when such rampant pessimism about the economy has existed with so little evidence of serious trouble...

Models based on recent monetary and tax policy suggest real GDP will grow at a 3% to 3.5% rate in 2008, while the probability of recession this year is 10%. This was true before recent rate cuts and stimulus packages. Now that the Fed has cut interest rates by 175 basis points, the odds of a huge surge in growth later in 2008 have grown. The biggest threat to the economy is still inflation, not recession.

Yet many believe that a recession has already begun because credit markets have seized up. This pessimistic view argues that losses from the subprime arena are the tip of the iceberg. An economic downturn, combined with a weakened financial system, will result in a perfect storm for the multi-trillion dollar derivatives market. It is feared that cascading problems with inter-connected counterparty risk, swaps and excessive leverage will cause the entire "house of cards," otherwise known as the U.S. financial system, to collapse. At a minimum, they fear credit will contract, causing a major economic slowdown.

For many, this catastrophic outlook brings back memories of the Great Depression, when bank failures begot more bank failures, money was scarce, credit was impossible to obtain, and economic problems spread like wildfire.

This outlook is both perplexing and worrisome. Perplexing, because it is hard to see how a campfire of a problem can spread to burn down the entire forest. What Federal Reserve Chairman Ben Bernanke recently estimated as a $100 billion loss on subprime loans would represent only 0.1% of the $100 trillion in combined assets of all U.S. households and U.S. non-farm, non-financial corporations. Even if losses ballooned to $300 billion, it would represent less than 0.3% of total U.S. assets.

Beneath every dollar of counterparty risk, and every swap, derivative, or leveraged loan, is a real economic asset. The only way credit troubles could spread to take down the entire system is if the economy completely fell apart. And that only happens when government policy goes wildly off track.

And please don't miss the conclusion:

Dow 15,000 looks much more likely than Dow 10,000. Keep the faith and stay invested. It's a wonderful buying opportunity.

Here's the same author explicitly blaming the media for the "false pessimism about the economy."

At the time, I responded to Ezzie like this:

So Ezzie, if in a year or two it becomes obvious that we are in a recession, do you promise to give up the WSJ? :-)

He didn't answer then. I wonder if he'll answer now:

The National Bureau of Economic Research said Monday that the U.S. has been in a recession since December 2007, making official what most Americans have already believed about the state of the economy .

The NBER is a private group of leading economists charged with dating the start and end of economic downturns. It typically takes a long time after the start of a recession to declare its start because of the need to look at final readings of various economic measures.

The NBER said that the deterioration in the labor market throughout 2008 was one key reason why it decided to state that the recession began last year.

Employers have trimmed payrolls by 1.2 million jobs in the first 10 months of this year. On Friday, economists are predicting the government will report a loss of another 325,000 jobs for November.

The NBER also looks at real personal income, industrial production as well as wholesale and retail sales. All those measures reached a peak between November 2007 and June 2008, the NBER said.

I'm just positive that the WSJ and its readers will critically examine the reasons for their grievous errors and will radically adjust their understanding of economics. Maybe they'll let even pick some economists based on merit instead of ideology.

Yeah, right.


EDIT: Here's Paul Krugman, also from January of this year, in that liberal rag The New York Times, two weeks before the WSJ spin-job:

Suddenly, the economic consensus seems to be that the implosion of the housing market will indeed push the U.S. economy into a recession, and that it’s quite possible that we’re already in one.