Things today just aren't that bad. Sure, there are trouble spots in the economy, as the government takeover of mortgage giants Fannie Mae and Freddie Mac, and jitters about Wall Street firm Lehman Brothers, amply demonstrate. And unemployment figures are up a bit, too. None of this, however, is cause for depression -- or exaggerated Depression comparisons.Alan Greenspan, on the same day:
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.
Former Federal Reserve Chairman Alan Greenspan said the financial crisis that began with the collapse of the subprime-mortgage market last year "is probably a once in a century event'' that will lead to the failure of more firms."Let me add: Luskin's article is filled with statistics to support his claim--but all of them, needless to say, measure the past, and the "last reported quarter" was buoyed by a one-time stimulus package and a resilience in American exports. (And Luskin could probably not have picked a worse day to publish his myopic article.) In sum, Luskin argues that only three or four dominoes have fallen; look at all the rest that are still standing up! So what if a few are wobbling! He's a bit like Wile E. Coyote, running off the cliff and congratulating himself on how high he still is.
"There's no question that this is in the process of outstripping anything I've seen, and it is still not resolved,'' Greenspan said in an interview today on ABC's "This Week with George Stephanopoulos.'' Greenspan, 82, retired from the Fed in January 2006 after serving for 18 years as chairman.
Luskin might argue that one can only predict the future of the economy based on the results of the past, but he's cherry-picking his figures. Very few politicians or economists are arguing that we're about to enter a depression; but there's little doubt that the fundamentals of the economy have undergone a seismic shift.
I suspect that even Luskin knows, as Greenspan does, that things are on the way down, it's going to get worse, and nobody knows where the bottom is. What's true for Merrill and Lehman is true for many financial institutions: "no one knows how badly their balance sheets have been damaged, not even their managements. As credit markets fluctuate and housing prices fall, the value of many financial instruments changes every day."
Luskin seems to belong to the school of thought that says we can cheerlead ourselves out of this crisis--the same way we deceived ourselves into a bubble. But the banking crisis will not stop with the collapse of Lehman Brothers, or Washington Mutual, or AIG, or Merrill Lynch, and on and on and on. The reason for the current panic is that nobody knows how many dominoes there are, or when the last one will fall.