Popular political analyst (and vociferous Clinton supporter) Mr. James Carville had a simple notion about how to win the 1992 Presidential election. He hung a sign in Bill Clinton's campaign office that stated: "It's the economy, stupid."

Clinton used this mantra to defeat the senior Bush, and the phrase has been stuck in political Americana ever since.

However, the same statement could easily be used today: just aim it at the public.

According to a poll by the Associated Press, 61% of Americans believe the economy is now suffering through a recession, the first since 2001. What justification is given for this blanket statement?

"Empty homes and for-sale signs clutter neighborhoods. You've lost your job or know someone who has. Your paycheck and nest egg are taking a hit. Could the country be in recession?"

...You know, if the only qualifer for a recession is that your house is for sale and Uncle Jerry got laid off from Meinke, then the country is in a recession a lot.

This is why matters economical are not voted on by the public, at least not directly. (You could certainly make the argument that depending on your personal economic philosophy you can vote by proxy; if you want lower taxes, you vote Republican, and if you want more welfare, you vote Democrat.) The reason the public doesn't get to vote directly on the economy is because the public doesn't understand the economy. People talk about the economy like they talk about the weather; "it looks like a recession" has all the scientific merit and analysis coming from John Q. Public as when he says "looks like it could rain."

Forgive me for being elitist. I don't mean to be. But this is what I do: I have a degree in economics, and unlike politics, economics is an exact science. Economics is simply the mathematical analysis of money -- it can be repeated with the same result and independently verified. Those who understand economics can explain any facet of the economy with precise detail.

Now, don't misunderstand me: I'm not saying economists can predict the future. We can't; we're not psychic. I don't know what the stock market is going to do tomorrow any more than does anyone else, whether they're an analyst at Goldman-Sachs or a retiree in his home office throwing darts at the Wall Street Journal. It's because the stock market, international exchanges, and consumers' economic behavior are all functions of the immediate now. What economists can do is read the present, reference the past, and make educated guesses about the future.

Let's do that.

What are the two major problems people cite for their statement that the economy is in a "recession"? They are: (1) the housing crisis; and (2) job growth.

A recession is not based on either one. Strictly speaking, the definition of a recession is "two consecutive quarters of negative growth." That growth occurs in the economy as a whole, usually measured by gross domestic product (GDP). That hasn't been seen in a long time, not even in 2001 where the economy shrank, grew, and shrank in 2Q01, 3Q01, and 4Q01 respectively.

This is the problem posed by armchair economists: they take a very specific, technical term like "recession" and bastardize it to mean "anytime I don't think things are going as well as they should be." You might as well tell a rocket scientist that a rocket can be anything you hurl upwards from the Earth, even a rock or a tennis ball.

Not to mention that the problems cited are fairly miniscule. The housing crisis occurred because people without a full knowledge and understanding of investing in real estate tried to make a quick buck off "cheap" housing prices. They got adjustable rate mortgages and thought they could flip the house by putting a few comestic repairs in place and selling it for twice what it was worth. The trouble was their only knowledge of real estate came from watching the "Design on a Dime" marathon on TLC. Then when the rate on their adjustable rate mortgage was -- surprise, surprise -- adjusted, they suddenly found themselves in a world of hurt. What kind of person gets an adjustable rate mortgage and is surprised when the rate gets adjusted? How comically inept do you have to be for that to happen?

But I digress. Long story short, what happened to the dot-com millionaires and amateur stock market playboys in 2000-2001 happened to the real estate geniuses this past year. Now, with people owning more than one house or owning houses they knew they couldn't afford, they find themselves spiraling downward.

A laissez faire economist would snicker and laugh, and say "Hope you learned your lesson." Which is more or less what I did, and it's also why I was appalled that the government is bailing them out with this so-called "fiscal stimulus."

Let's review:

1. People buy houses they can't afford.
2. Those new homeowners can't make their payments.
3. They whine to the government.
4. The government bails them out.
5. Repeat.

Not to mention that the fiscal stimulus is picking our own pocket. We're taking a little money from a lot of people and giving a lot of money to a little group of people. Know what that's called? Here's a hint.

As for reason number two, the unemployment rate is at 4.9% -- this is compared to the "booming '90s" where the rate averaged between 5% - 6.2%. With an unemployment rate at 4.9%, you can't expect to keep creating jobs forever. Further, January 2008 is the first time in four years that job growth has dropped (as an aside, that's a testament to Bush's economic policies, which I'll give him credit for).

Does declining job growth represent a serious threat to the economy? Sure. But are we positive that job growth is declining? No. One month in four years does not represent irrefutable data. Further, who is complaining about slow job growth? No one is unemployed! Even I've got a job these days. And that's saying something.

In short, the government cannot kowtow to the general public's whimsical definition of a "recession" and certainly cannot bow to their economic demands. If we did, we'd all be getting million dollar checks from the government every month; absolutely worthless million dollar checks.

Why is the economy slow these days? "It's the economy, stupid!" It does that!

Labels: Economics, News and Current Events