The pessimism behind the pessimsm

In my last post, I presented the summary economic outlook from the Q3 Kauffman survey of top economics bloggers.  Behind the pessimism, the next question is really troubling.  It says that not only is the economic news grim, but things are worse than the news.  Just five percent of bloggers think the economy is doing better than official figures show, while 47 percent think it is doing worse. That's shocking. 

Let's remind ourselves what the official data are.  The latest unemployment rate is 9.5 percent.  Payroll employment declined by 125,000 in June.  GDP growth was estimated to be 3.7 percent in Q1, and 2.4 percent in Q2 (though this was reported after the survey was taken), much lower than expected & hoped.  Maybe the survey reveals some knowledge that GDP growth in Q2 would be disappointing, but I think this response represents something deeper.

Everyone knows that the unemployment number is lower than what it would be if all the discouraged workers were counted in the labor force.  But that's an official statistic itself: the so-called unemployment rate of 16.5 percent (official the U-6 rate) which is reported on table A-15 of the Employment Situation Report.  So that story isn't driving blogger pessimism.  Another ghastly official state is the weekly report of jobless claims, which has been over 400,000 for years now, and just today climbed uncomfortably close to 500,000.  Think about that.  Nearly half a million Americans filed for jobless benefits in one week.  And that's been the pace for years now.

But according to econ bloggers, even that isn't bad enough to reflect reality.  What could explain their pessimism?

One possible explanation: uncertainty. Look, this was by far the most common adjective used in bloggers' descriptions of the current state of the U.S. economy.  It seems convenient for some pundits to claim unertainty is a cheap explanation. It surprises me that they take themselves seriously.  The notion that economics was clockwork was discredited by none other than JM Keynes, right? Isn't the great insight of 21st century econ that rationality has been oversold and that uncertainty matters?  And in a year when nobody seems to know something as simple as whether the economy will recess or grow in 2011, what tax rates will be in 2011, whether the reform of 1/7th of the economy is Constitutional, one at least has to admit that uncertainty has rarely been so high as it is now. 

The other explanation: certainty.  In other words, the wrong policies are in place, and bloggers are certain that they're wrong.  This shows up in the following survey response:

The third explanation, and the one that animates my fears is the realization that yes, Virginia, the Fed is out of ammo.  It's not that the Fed couldn't manufacture inflation if it wanted to. I have no doubt about that.  Rather, I think the economy is finally coming to grips with a genuine constraint. We can't just reinflate this bubble by pushing back the debt to the next generation with lower and lower interest rates keeping the bubble economy inflated. The gig is up.  

 

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