January 24th, 2008

The course of true blogging never did run…

…smooth.

I’m having some connectivity problems today, so this post will be quick. I plan to be back at full speed tomorrow.

As any of you who are trying to sell a house right now or who have watched the stock market do loop-de-loops lately know, the economy appears unstable. And, of course, in this election year, that has consequences for the candidates.

There’s no death of opinions about what those consequences will be, or where the economy is really heading, although there’s also no consensus. This is hardly unusual in economic matters.

One thing that’s clear is that things have changed lately. This piece by Michael Barone makes the excellent point that ideas about the economy used to be shaped by a populace the bulk of whom had lived through the Great Depression, but are now shaped by a very different group.

If you want to feel old, just take a look at this:

The median-age voter in 2008 was born around 1963. This voter never waited behind the steering wheel in gas lines and never struggled to pay bills during the stagflation of the 1970s. This voter has lived all of his or her adult life in an economy that has had low-inflation growth about 95 percent of the time. For these voters, such prosperity may largely be taken for granted. And their assessments of the economy are likely to be very different from those of voters who had a personal memory of the 1930s.

Or the 60s and 70s, for that matter.

Barone also points out that opinions on the economy now separate along more strictly partisan lines. I’m not so sure this wasn’t always true, but at any rate it certainly goes along with the increasingly bitterly divided partisanship of our times.

I would add that this partisanship along economic lines is aided and abetted by the fact that economics is a somewhat specialized—some would say hazy—field, once that has some elements of science and some of Tarot card reading. It is also a discipline in which many of us are less than highly versed (I count myself among them; economics has never been my strong suit).

One thing is certain: relative ignorance about economics and the future allows candidates, handlers, and political prognosticators to fill in the blanks. “It’s the economy, stupid” takes on a new meaning. In the sense of knowing the economic future, we are all somewhat stupid.

13 Responses to “The course of true blogging never did run…”

  1. Vince P Says:

    I was born in 1974, the only economy I know is Reagan’s.

    I remember watching movies in the 80s as a kid and noticing the desperation that Hollywood tried to protray things as so deseperate then.

    I have no memory of hte energy problems in the 70s and cant even believe that there were Federal price control on things back then.

  2. njcommuter Says:

    This is why it’s all the more important that we tell our children and our younger friends, and that we get the facts right.

  3. Valjean Says:

    I was born, well, right around Barone’s sweet spot — but boy, do I ever remember the 70s! I may not have been “behind the wheel” queuing for gas, but my older siblings and parents sure were. I remember Nixon’s price controls and Jimmy “Malaise” Carter’s serial screw-ups like it was yesterday.

    Maybe I was just an early political junkie but it was a crazy decade — economically and in many other ways — and I don’t think I was exceptional. In short, I found Barone’s characterization of “my generation” just a tad glib. Trust me: we may have missed the Beatles, but we “got” the 70s all too well.

  4. expat Says:

    njc,

    I’m a real boomer, but with poorer and more small-town/rural roots. The things I learned from my parents and relatives were closer to 1930s survival skills. I am so grateful for that perspective. So yes, teach the kids.

  5. Occam's Beard Says:

    I’m sad to say I remember all that stuff, including the even/odd days for gas, and Gerry Ford’s lame “Whip Inflation Now” campaign, complete with buttons.

  6. Jimmy J. Says:

    Born as the depression was just getting really bad, I’ve seen quite a lot. WWII, Korea, Vietnam, stagflation, 17% interest rates on mortgages, oil shortages, the Savings and Loan debacle, the aerospace industry meltdown, and much, much more. Believe me, this is pretty small potatoes in relation to a lot of past problems.

    Guess what? The “subprime mess” is a replay of the Savings and Loan debacle. A lot of money is going to be lost (in fact a lot has already been lost) by some “sophisticated investors” (mortgage banks, investment banks, brokers, etc.) who should have known better. Just like in the Savings and Loan crisis, it became too easy to make big bucks by lending on poorly appraised properties to people who didn’t really qualify for the loans. Then there was the speculation in real estate by unsophisticated people. I saw it in Naples, Florida three years ago. People were buying houses that weren’t even built because they could resell them to someone else for more money after they were completed. It was all great fun and very profitable until the new buyers quit showing up, which they did when mortgage rates went above 6%. A lot of speculators are now defaulting on those mortgages on houses they never planned to live in.

    The problem today is that the bad mortgages are bundled up in CMOs (Collateralized mortgage Obligations) so it makes the CMOs difficult to value. When the value of an asset is hard to determine, the price goes way down.

    The irrational thing is that a lot of other income investments have suffered because of the FEAR engendered by the losses on CMOs. Perfectly good investment grade bonds, preferred stocks, and even municipal bonds have been gyrating and trading like they were speculative stocks for the last four months.

    My experience tells me that this issue is overhyped because a lot of the “sophisticated investors” want the Federal Reserve and the government to do just what they’re doing – lower interest rates and pump more money into the economy in the hopes that the “sophisticated investors” will be able to recoup some of their losses. The MSM in their turn see this as a good thing for the Dems and are pushing the hype.

    This problem will be solved, but there will have to be economic pain involved. There will be bankruptcies, losses written off, and, unfortunately, some actual homeowners will lose their homes. The mortgage lenders went on a bender, and now the hangover, with the resultant throbbing pain and regret, begins.

    The politics of this is that the Dems will try to use this as an argument for their big government solutions, and how they can “manage” the economy. Unfortunately, many unsophisticated people will buy their rhetoric. If the economy is the big issue next November, it will give the Dems an advantage.

  7. Erich Schwarz Says:

    I was born in 1964. And I echo Valjean — yes, I remember the 1970s extremely vividly.

    I was 15 years old in L.A. when we had the Iranian hostage crisis, the Soviet invasion of Afghanistan, gasoline rationing, double-digit inflation coupled with double-digit unemployment, the Hillside Strangler dumping a nude woman’s corpse right down the street from our family’s house, some frustrated car thief trying to set our house on fire, the fall of Skylab, the “malaise” speech … all of it.

    Barone seriously underestimates just how conscious of the outside world somebody in their mid-teens can be, especially when that “outside world” consisted of the implosion of Jimmy Carter’s Presidency.

    But, for my friends who are 10 years younger than me, I’d be more willing to speculate that Barone’s point holds true. By the time they were 15, the Berlin Wall was peacefully coming down. Nobody remembered by then that Garry Trudeau had mocked Ronald Reagan a few years earlier for saying, “Mr. Gorbachev, tear down this wall!”, or that in the early 1980s many people had worried about an outbreak of WWIII. The bloodless and peaceful Velvet Revolution of eastern Europe was just … happening, as were low inflation, high employment, relatively low gasoline prices, etc. To people with those life experiences as their earliest real memories of adult life, my endless worries about U.S. national security and economic vitality no doubt seem rather over-the-top.

    So it’s not just a question of being as young (heh) as somebody in their early 40s. Even somebody in their early 40s like myself grew up in a very, very different America than somebody now in their early 20s. And there is no reason to assume that history is going to stop any time soon, either: in another 10-20 years, no doubt my own younger friends will be having their own Rip Van Winkle epiphanies.

  8. Sergey Says:

    We are not stupid. We simply are humans, so our knowledge is always incomplete and insufficient for accurate or even not so accurate prediction of future. Economy is self-organizing system, and such systems defy any attempts of prediction, especially when they are in instable condition. Here we have the famous “butterfly effect”, when a small disturbance, like from butterfly wings motion in one hemisphere, can result in huge hurricane in another hemisphere. Is it possible to control such systems using this effect? Mathematics say “yes” on condition that our knowledge is complete and precise, up to knowing future motions of all other butterflies in the world, so actually to exercize this control one need to be omniscient God. Humans lack this privilege.

  9. camojack Says:

    I was born in the 50′s…consequently, I’m in the 50′s too.

    Anyway, my 401K lost about $8500 in the last few months.

    Boo-freakin’-hoo…

  10. goesh Says:

    I’ve lost and earned in stocks and bonds and the ol’ 401 has taken more than one pounding over the years – never hoard in a recession, hedge with some gold when war looms, keep spending, our ancestors have seen worse and survived, don’t retire just yet for those at that age. I do think the incentive Congress is about to be pass should be dispersed in at least 2 payments, 3 would be better.

  11. Tom Grey - Liberty Dad Says:

    Partianship is rampant in Science. I just read a Brookings Institute “Primer on Fiscal Stimulus”. From my pro-tax cuts view, it is substantially a combination of good analysis on some proposals combined with a vaguely supported but strongly worded and frequently repeated opposition to tax cuts.

    Bush’s 2001 & 2003 tax cuts led, in fact, to the longest continuous growth of the US economy.

    In 2004, the Dems were against tax cuts. They still are, despite the evidence of success.

    Jimmy J above made a great point that the over-hyping of the subprime mortgage mess is because the rich elites who invested in the easy money pyramid scheme of real estate speculation want a Fed bail out.

    On the other hand, he’s a bit wrong on inflation / lower interest rates. The US Fed has learned how to avoid depression. Lower rates work. They even work to avoid a strong recession, they will work in 2008 (despite the anti-Rep MSM hype). Milton Friedman (monetarism) also taught the Fed how to avoid inflation — higher rates.

    Under Clinton the inflation was good & low, the unemployment was good & low … until the dot.com bubble pop. Under Bush the inflation was good & low, the unemployment was good & low, until the Asset Appreciation bubble pop.

    Note that the falling dollar means that US exports have been going up! Most economic clouds have silver linings.

  12. Occam's Beard Says:

    Tom, I wouldn’t call economics a science, in part because of the problems you mention, but primarily because it has the problems of any purely observational endeavor – the inability to design sound positive and negative controls.

    Because of that failing, opinion romps untrammeled by dispositive data.

  13. Sergey Says:

    Human factor plays so important role in economics because behaviour of markets only reflects behaviour of market participants. It can be influenced by many, many things, and often the basic assumption of economic theory – that it is rational – do not holds, especially at moments of a crisis. Sometimes they have not sufficient information to make rational choice, and must base their decisions on gossip or on wild guesses about future. This makes financional markets so volatile and inherently unstable.

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Previously a lifelong Democrat, born in New York and living in New England, surrounded by liberals on all sides, I've found myself slowly but surely leaving the fold and becoming that dread thing: a neocon.
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