The Man Who Cried “Sheep!”

Shorter Donald Luskin: “People think the economy is crashing, but it’s all Obama’s fault because he wants to make the Republicans look bad.”

Here’s a taste; note the distancing quotation marks below.

“…this newspaper alone has written no fewer than nine times, in news stories, columns and op-eds, that key elements of the economy are the worst they've been "since the Great Depression." That diagnosis has been applied twice to the housing "slump" and once to the housing "crisis," to the "severe" decline in home prices, to the "spike" in mortgage foreclosures, to the "change" in the mortgage market and the "turmoil" in debt markets, and to the "crisis" or "meltdown" in financial markets.

It's a virus -- and it's spreading. …Patient zero in this epidemic is the Democratic candidate for president. As it would be for any challenger, it's in his interest to portray the incumbent party's economic performance in the grimmest possible terms.”

Setting aside the gratuitous dogwhistle AIDS reference, is Luskin trying to tell us that housing, mortgages, and the debt and financial markets are not a concern? Anyone would think so, reading this paragraph, but of course he can legitimately say it is still not as bad as the Great Depression.

Then Luskin sets to work looking a the bright side:

“Overall, the pessimists are up against an insurmountable reality: In the last reported quarter, the U.S. economy grew at an annual rate of 3.3 percent, adjusted for inflation. That's virtually the same as the 3.4 percent average growth rate since -- yes -- the Great Depression.”

He goes on to make light of the economic crisis, and saying that for instance a 20% fall in the S&P 500 is nothing by historical standards, "... it fell twice that much in 1974..." he tells us. As for the household savings rate, which in 2005 was -0.7%, he has cheerful news if you squint and only look at one thin slice: “…The latest rate, for the second quarter of 2008, is 2.6 percent -- higher than the 1.9 percent rate that prevailed in the last quarter of Bill Clinton's presidency….” (Donald, maybe you didn’t notice, but for most of the Clinton years, the savings rate sat between 4 and 7%, while since 2001 it never rose above 3.4%. Just sayin’.)

Finally, cheerful, worldly Mr. Luskin presents us with a new law of economics!

"…this will prove to be yet another instance of that iron law of economics and markets: The sentiment of the majority is always wrong at key turning points. And the majority is plenty pessimistic right now. That suggests that we're on the brink not of recession, but of accelerating prosperity."

Donald, if this is an iron law of economics, then can I assume you mean that the majority of people who buy stocks either do not know or cannot know what they are buying and how it will fare? Or does this iron law just apply when irrational pessimism holds sway, but not irrational optimism?

You seem to be saying at the moment that American’s fears are overblown, and I agree. Hah! You young ‘uns has it easy. America does not yet have large numbers of hobos riding the rails (a terrifying method of traveling by train which does not include being inside a box car). American seniors at the moment have both an income and health care -- unlike people who have not yet reached age 65. Rickets and scurvy and tuberculosis and worms aren’t as common as they were in the Great Depression, and almost everyone has indoor plumbing. Things aren’t THAT bad, not as bad as the Depression. And if things aren’t bad, that means they’re good, right?

Oh, and of course Luskin tells us “Full disclosure: I'm an adviser to John McCain's campaign…”

No! Rly?

Baaaah.