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Is a Recession Coming?

September 12, 2019

In a recent survey of business economists, only 4 percent said they expected a recession to begin by the end of the year.

In a recent survey of business economists, only 4 percent said they expected a recession to begin by the end of the year. But, that’s not what the fake news reported. The Washington Post, for example, headlined “3 out of 4 economists predict a U.S. recession by 2021.” The fact that very few economists expect a recession in the near term was buried in articles or not reported at all.

The forecast of an imminent and even a disastrous recession has been continually pushed by the fake news since Trump’s election. The day after that election, Paul Krugman, writing for the New York Times said, Al Gore-like, “we are very probably looking at a global recession, with no end in sight.” Yet here we are with an economy that has been growing continuously for the longest period in history, an unemployment rate of 3.7 percent, real wages for the middle class back on the uptick (finally!), and a Dow Jones Index, that closed at 18,259.60 on the day of that election, closing on September 11th at 27,137.04.

By the way, Krugman is a Nobel Prize-winning economist whom I have long admired for his work in international economics.

Repeating President Obama’s “magic wand” dismissal of the possibility of revving up the growth rate, Larry Summers early in 2017 said on CNBC, “there is nothing in any data suggesting we’re moving toward that 3 to 4 percent growth standard [promised by Trump during the campaign].” The GDP growth rate hit 3 percent in the second quarter of 2017, and hit 4 percent in the second quarter of 2018.

Not only is Summers a top economist, anybody who gets fired by Harvard University for upsetting the femi-Nazis can’t be all bad.

Summers later in 2017 switched from the “magic wand” school of economics to the “sugar high” school of economics. Yes, the economy was being shifted from second into third gear, but this was just a “sugar high.” Such a high rate of growth wasn’t sustainable, and soon we would be coming down from that sugar high, suffering from a hangover, going cold turkey, or some other colorful metaphor explaining the workings of the economy to mere laymen.

After being wrong two times in a row, we haven’t been heard much from Summers recently.

At this time, the near-term prospects for the economy are mixed, with some positive and some negative signals. Most economists have been, for some time, anticipating a slow-down; and, indeed, the latest figures show the GDP slowing down from a growth rate of about 3 to about 2 percent. Slow-downs are always tricky things and nobody really knows how this will turn out. About all that can be said Is that there’s enough momentum in the economy to see us through the next few months.

Part of the slow-down was engineered by the Federal Reserve at the end of last year, to cut short the build-up of inflationary pressure in our Trumpified economy. But, the Fed has often over-corrected, and induced a subsequent recession because the process is dynamically unstable. It’s like backing up with a trailer. It’s impressive when a professional driver does it without jackknifing, but it’s impossible to do on the interstate at 70 mph. Because of dynamic instability, “engineering a ‘soft landing,’” as they say at the Fed, by manipulating interest rates, is like engineering a soft landing with a Boeing 747-MAX.

Hey, Larry, we monetary economists have some colorful metaphors of our own.

Article Tags
Economy
Author
Clifford F. Thies is the Eldon R. Lindsay Professor of Economics and Finance at Shenandoah University. He received his Ph.D. in economics from Boston College.
cthies@su.edu

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