More on the Recovery

"If the economy is getting better, then why are there 6 million less jobs in America today than there were before the recession started?" a blogger recently asked.

Because two years ago, there were 9 million fewer jobs than before the recession started. By no means is the economy recovered, but it is recovering.

Plenty of readers took issue with my claim that last week's jobs report confirms that things are moving in the right direction. Some said the numbers were flawed. Others said I wasn't looking at the right numbers. Others were miffed at the idea of recovery because their own circumstances are in contrast.

These weren't bad criticisms, but I'm sticking with my views. The economy is recovering. I feel that way not because of an ideological bent, but because it's what the facts show. I was bearish and skeptical when I thought the numbers backed it up. But the numbers have changed. And as I wrote last year: If you can't accept that when things change your opinions might need to change, too, you will be left anchored to a reality that no longer exists -- and likely making terrible predictions.

What facts do I think show the economy is recovering? Let's talk about three.

1. A decline in the unemployment rate -- all unemployment rates
The Bureau of Labor Statistics calculates several different unemployment rates. The most common, and the one most cited in the media, counts people who aren't working but would like to work and are actively looking for work. It's fallen from 9.4% a year ago to 8.3% in January.

But hold on -- that unemployment rate ignores those who have given up and stopped looking for work, and those working part time but want full-time work. Mitt Romney has been emphasizing this point lately: "If you take into account all the people who are struggling for work or who have just stopped looking, the real unemployment rate is over 15 percent," he said this week.

He's absolutely right. But that more complete measure of unemployment is falling, too. In fact, every way the BLS measures unemployment is in decline.

Source: Bureau of Labor Statistics.

The unemployment rate for groups hit especially hard by the recession is falling briskly. For men, unemployment has dropped from 11.2% in 2009 to 8.3% today. For African-Americans, it's declined from nearly 17% in 2010 to 13.6% today. For those ages 16-19, it's dropped from 29% 18 months ago to 24% today. Overall, the number of job openings has increased 39% since mid-2009.

Some readers disregard all of these numbers because they're published by a government entity they feel is biased and untrustworthy. But private payroll processor ADP also calculates a monthly job-creation report, and its numbers have actually been more bullish than the government figures. By ADP's calculation, private businesses have created more than 2 million jobs in the last years, which is 100,000 more than the BLS figures indicate.

Make no mistake: The employment situation is still awful. Millions of Americans have been out of work for a year or longer and will struggle to get reacquainted with the labor force even when employers want to hire -- a reality seen in the still-sky-high average duration of unemployment. But we have to distinguish "good" from "getting better." Things are by no means good. But they are, I think clearly, getting better.

2. Real income, GDP, industrial production… it's all moving up -- fast
The finance blog Calculated Risk produces some of the best economic-data graphs out there. Yesterday, it posted three good visuals outlining the recovery.

The first is the recovery in real personal income less transfer payments (government checks). While still below the pre-recession peak, income has made up more than half its loss:

The average worker is earning more money in inflation-adjusted terms than they were two years ago. In any world, that's good news.

Same for industrial production: We're still below the pre-recession peak but clearly moving in the right direction.

And real gross domestic product is now actually fully recovered (though it's not the best measure of how people are doing):

None of these figures show the economy is healed. In fact, the first two show clearly that we're still well below 2007 levels. But they all show that things are getting better -- and probably faster than most people assume.

3. The ills that caused the recession are being washed away
This recession was caused by an overdose in debt, particularly in the household and banking sector. And I'll say it until I'm hoarse: The main reason the economy is slow today is because households and banks are relieving themselves of that debt about as fast as they can. That's why our recovery has been slow, but it's what makes it real. We're attacking the root cause of our problems, not just the symptoms.

Since 2008, mortgage debt has declined by about $1 trillion. Credit card debt has dropped by $180 billion. Household debt payments as a percentage of income are now at the lowest level in 18 years. Even when government debt is taken into account, the economy's total debt-to-GDP ratio has been declining for four years, and faster than nearly any other developed nation on Earth.

As the late Andy Rooney put it: "People will generally accept facts as truth only if the facts agree with what they already believe." People view things differently -- that's what makes markets. But to me, the only way one can outright reject the idea that things are getting better is to be, at least partially, blinded by preset beliefs.

What do you think?

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On February 09, 2012, at 10:35 AM, XTMFCaptain wrote:

    You make it sound as if we are really doing a bang up job reducing debt. The reality is our debt to GDP is still 350%, 50% higher than the peak of the great depression and only down about 5% from the peak.

    The only time we get upward movement in asset prices or economic news is when the Fed pumps money in. As soon as that stops, deflation takes hold.

    Things have improved, but any slow down in the spigot of printed money will cause a relapse. We are in a classic debt deflationary environment. It will take years until we see normal growth trends.

    If you are saying we have improved since the bottom, you are right. If you are saying the economy is healthy, you are wrong.

  • Report this Comment On February 09, 2012, at 10:37 AM, TMFHousel wrote:

    <<If you are saying we have improved since the bottom, you are right. If you are saying the economy is healthy, you are wrong.>>

    The second sentence in the article:

    "By no means is the economy recovered, but it is recovering."

  • Report this Comment On February 09, 2012, at 11:57 AM, DJDynamicNC wrote:

    Nailed it.

  • Report this Comment On February 09, 2012, at 12:27 PM, slpmn wrote:

    I was at a seminar last week where a Fed economist asked the audience if we were in a 1) recession, 2) recovery, 3) expansion. About half said recession, half said recovery, and one said expansion. The economist said if you look at the data, we're clearly in an expansion. Problem is the unemployment rate is still high, so it feels worse than it is.

    Second issue is, you've got about half the population that doesn't want to hear that things are getting better, much less admit that's the case because to do so is an admission that policies of the current administration are working. And that just can't be acknowledged.

    Fact is, it's a clear cut recovery/expansion. Yes, debt is high. Yes, unemployment is high. That is not the point. The point is, things are getting better, and if that continues, both unemployment and debt will fall. How? Businesses sell more, they hire more, they pay more taxes. Pretty simple. It happened in the '90s and it will happen again. Just let it work.

    And, I have to say it - one may not like Obama, but if anyone thinks President Santorum and a Tea Party congress would do a better job...well, god help us all.

  • Report this Comment On February 09, 2012, at 12:40 PM, DJDynamicNC wrote:

    To be fair, if your goal is decimating the social safety net and creating a theocracy, then a Santorum presidency is bound to do a better job....

  • Report this Comment On February 09, 2012, at 1:49 PM, TMFGortok wrote:

    What you gloss over is that this 'recovery' is also at the same time being fueled by a huge increase in government spending. The government spends more than it makes, and every plan out there (save Ron Paul's) wouldn't address the debt situation. It would reduce the deficit over 10 years, but there would still not be a balanced budget in the forseeable future.

    As an aside, if you take the various candidates' positions to their logical conclusion, we can expect (at best) to be in just as bad shape in 5 years as we are right now. Again, I'm excluding Ron Paul because his budget plan actually calls for cuts, and not just reductions in baseline increases.

    Anyway, back to this 'recovery'. Through the various QEs, the Fed has pumped lots of money into the economy, debasing the currency and giving us the illusion of a recovery. The Federal Funds rate is at or near zero. The only reason we haven't had an extreme amount of inflation is because banks are holding on to the money (or loaning it back to the government at 2%, and making money off the deal). If they were to start lending at the rate they did before the bust, we would be in serious trouble.

    Combine that with the fact that we still have a debt crisis on our hands (our debt is at 102% of GDP); and you have a recipe not for a recovery, but for a fiscal disaster.

    The government needs to spend less than it makes, the interest rates should be set by the market, and savings should drive investment -- not cheap money.

    To address one other point you made, you say that wages have gone up in inflation adjusted terms. Who's doing the inflation calculation? The government has 'revised' how they calculate inflation many times, and if you use how we calculated it in 1990, we have 6% inflation right now (which means that in three years, we'll have lost almost 20% purchasing power from this year).

  • Report this Comment On February 09, 2012, at 2:23 PM, kyleleeh wrote:

    >>If you can't accept that when things change your opinions might need to change, too, you will be left anchored to a reality that no longer exists -- and likely making terrible predictions.<<

    Well said

  • Report this Comment On February 09, 2012, at 3:04 PM, DJDynamicNC wrote:

    @Gortok - a couple of points here:

    1) You assume that reductions in increases will not suffice, yet the implicit assumption there is that the economy will simply fail to grow. We never paid off the debt accumulated during World War II, we simply grew faster than the debt service and eventually it faded to virtual irrelevance before Reagan exploded the deficit.

    2) "Savings should drive investment -- not cheap money." That's a moral judgment, not an economic one. If I'm a business, and I can take advantage of cheap money to make investments in my business which then yield a return, I've done the smart thing. On the flip side, don't think bubbles didn't occur before the advent of fiat currency.

    Interestingly, if we were ALL savers, the economy would collapse. By definition, for an economy to function there needs to be spenders as well savers; there needs to be debtors as well as creditors. You must not fail to take that into account.

    3) Would you care to run the calculation on whether or not wages have gone up in inflation adjusted terms using your preferred 1990s inflation formula? I'd be interested to see if wages have still increased under that reasoning.

    4) Ron Paul's plan would decimate the public sector. I realize that for some reason people think those jobs don't "count" as real jobs - presumably people who have never called the police - but to the very real people doing very real work and living paycheck to paycheck off those jobs, the destruction of them would be devestating. I don't know how you can expect that not to have an incredible negative impact on the economy. Even if the market did take over to fill every job that was lost (which I find unlikely), it would take time to ramp up - time in which livelihoods would be lost and families torn apart (and, of course, Ron Paul would also remove the safety net that protects against just such a situation). This strikes me as at least passingly important, but I suppose I'm a bleeding heart liberal.

  • Report this Comment On February 09, 2012, at 4:01 PM, setht23 wrote:

    @DJDynamicNC

    Yes you are.

  • Report this Comment On February 09, 2012, at 4:07 PM, kyleleeh wrote:

    @DJDynamic

    Good points all around

    to number 4 I would also add if elminating government jobs don't effect the economy then why did we enter into a recession after ww2 when we laid off millions of soldiers?

  • Report this Comment On February 09, 2012, at 4:17 PM, slpmn wrote:

    The thing is, you can be a bleeding heart liberal and still think the best thing for the economy (and investments) is to run as far away from shortsighted garbage like that spewed by the Republican campaign machine as you can.

    When it comes down to it, all I care about is what is best for my investments, and that means I want a strong economy and a well regulated industrial complex. Well regulated so greedy managers can't screw things up just so they hit their bonus numbers. Because despite what Gecko says, Greed isn't good.

    I care about inflation - I don't see it except in healthcare and that's a whole other topic on its own. I care about interest rates - they're really really low. I care about the deficit, but less during a recession and early recovery because government spending helps fill the gap while the private sector recovers. The time for cuts is when times are good. And, government spending is not the same as a bunch of communists throwing dollar bills into a bonfire. Every dollar spent is income for a human being somewhere down the line. Does that mean it's inherently good? Of course not. But it sure isn't an inherent evil in and of itself, either.

    Let's be clear about one thing. There are lots of reasons to trim the federal budget. A misguided notion that it will help the current economic recovery is not one of them.

  • Report this Comment On February 09, 2012, at 4:49 PM, ETFsRule wrote:

    "What you gloss over is that this 'recovery' is also at the same time being fueled by a huge increase in government spending. "

    False. The gov't is currently decreasing its spending, as evidenced by this line recently crossing below zero:

    http://research.stlouisfed.org/fredgraph.png?g=4UW

  • Report this Comment On February 09, 2012, at 4:52 PM, IdahoAve wrote:

    oh lord I hope so, soon this will all seem like a bad bad dream.

  • Report this Comment On February 09, 2012, at 4:53 PM, TMFGortok wrote:

    @kyleleeh we didn't have a recession after WWII. The end of WWII And the soldiers coming home actually gave us an economic boom (Don't forget that the government slashed spending by 60% and taxes by a great amount as well). The Keynesians at the time were horrified.

  • Report this Comment On February 09, 2012, at 4:54 PM, DJDynamicNC wrote:

    @slpmn and Kyleleeh - good points!

    @TMFGortok - Two final points:

    1) Government spending taking over for private sector spending during deleveraging periods is exactly how Keynesian economics is supposed to work. If anything, the spending has been insuffiicient which is why it's taken so long to start properly recovering, but once we return to trend it will be time to start paying down the deficit and not before. Your opposition to it is rooted in Austrian economics, I'm sure, but by definition that's a non-empirical stance.

    2) So, in grand Fool tradition, I propose we moneyball this. You said: "As an aside, if you take the various candidates' positions to their logical conclusion, we can expect (at best) to be in just as bad shape in 5 years as we are right now."

    5 years from now will be February 9th, 2017. If by noon on that date the United States is running at:

    A) The same (or worse) unemployment rates, as measured by U6;

    B) The same (or worse) revenue to outlay annual budget ratio; AND

    C) The same (or worse) total public debt as a percentage of GDP;

    ... then I will owe you. If, on the other hand, the United States is measurably improved in any one of those categories, you'll owe me. We can do an ounce of silver if you like.

    I'm partial to BLS statistics, and since I know it's a concern, we can record the formulae used to calculate those statistics today so that the same formulae can be applied in five years.

    Thoughts?

  • Report this Comment On February 09, 2012, at 4:57 PM, TMFGortok wrote:

    @EtfsRule I include the Federal Reserve and the various QEs and their other programs as spending, since we have to pay for it (usually through the tax known as inflation). Keep in mind that even if the 'expenditures' are going down, the amount the government spends to service its debt goes up.

    Also remember that the debt is increasing, not decreasing.

  • Report this Comment On February 09, 2012, at 5:01 PM, TMFHousel wrote:

    <<we didn't have a recession after WWII>>

    There were 2 recessions immediately following the end of WW2. One in 1945, and one in 1948-49. In terms of the decline in real GDP, the 1945 recession was one of the largest ever -- real GDP fell by over 10%.

    http://www.nber.org/cycles.html

    http://research.stlouisfed.org/fred2/graph/fredgraph.png?&am...

  • Report this Comment On February 09, 2012, at 5:04 PM, kyleleeh wrote:

    @TMFHousel

    LOL I was just about that same link...beat me to it!

  • Report this Comment On February 09, 2012, at 5:13 PM, kyleleeh wrote:

    So many people argue that Government stimulus didn't end the great depression..WW2 did. WW2 was government stimulus, every one in the nation was either on the military pay roll, or working to fullfill defence contracts. Government spending does play a roll in economic recovery.

  • Report this Comment On February 09, 2012, at 5:23 PM, astuber9 wrote:

    Great to see more hiring but how much is due to pent up demand, that is productivity is maxed out so employers have to hire more workers. Either way I'm not complaining, any increase in jobs is great considering where we are coming from like Morgan said. I just don't know if it can continue for the next 6 months, and the election will come down to this and little else, debates will not matter.

  • Report this Comment On February 09, 2012, at 5:32 PM, moneytrail wrote:

    Good analysis Morgan.

    What still concerns me as an investor is the fact that since '09 we have stimulated the economy with $5 trillion we had to borrow. I guess, as a successful investor, skepticism has served me well over the years and although all the numbers you cite are certainly headed in the right direction, my concern is they're pumped up with the hot air of $5 trillion of borrowed money. I certainly hope the numbers continue in a positive direction, but still believe they mask the structural dislocations our economy is working through. In any event, up is better than down for investors, political stripes notwithstanding.

    Moneytrail.

  • Report this Comment On February 09, 2012, at 5:37 PM, xetn wrote:

    I find this chart to be much more telling regarding the employment figures:

    http://www.caseyresearch.com/gsd/sites/default/files/AVW.jpg

  • Report this Comment On February 09, 2012, at 6:06 PM, ETFsRule wrote:

    "@EtfsRule I include the Federal Reserve and the various QEs and their other programs as spending, since we have to pay for it (usually through the tax known as inflation)."

    That's a strange view of inflation. If QE did increase inflation, this would actually decrease our overall debt load.

    "Keep in mind that even if the 'expenditures' are going down, the amount the government spends to service its debt goes up. "

    Debt service payments are included in that graph.

    "Also remember that the debt is increasing, not decreasing."

    Yes but that's a different issue.

    Maybe I misundertood you, but it seemed like you were arguing that increased spending was the reason for the recent improvements in the economy.

  • Report this Comment On February 09, 2012, at 6:06 PM, rdwicker wrote:

    Morgan, your reports and articles, in my mind are worthy - always. Why? Because they always provoke thought AND comment.

    Well done!

    Seems like you should send this one onto / into the news outlets. What our economy REALLY needs is the news to report facts such as these. I live in florida and every restaurant we go in is PACKED.

    The bars have folks of all ages drinking and spending money, which is the catalyst, right? I spend my money on brews and food, they take that money buy food, pay employees, who take that money and buy tires, gas, etc.

    I'm not foolish enough to think that things are great - my wife has been without a job for nine months, there are houses for sale EVERYwhere - but things are ok in my middle class world.

    This economy is built around smart borrowing, investing in the future and spending on stuff. Buying shwag drives the machine.

    Now go out and buy a brew, you all deserve it!

  • Report this Comment On February 09, 2012, at 6:23 PM, slpmn wrote:

    @rdwicker - best advice I've heard all day.

  • Report this Comment On February 09, 2012, at 6:33 PM, whatevmatil wrote:

    On the topic of unemployement rate - for your consideration: payroll tax withholdings.

    <br><br>

    http://trimtabs.com/blog/2012/02/07/bidermans-daily-edge-262...

  • Report this Comment On February 09, 2012, at 6:34 PM, whatevmatil wrote:

    the following link was suppose to be in my post above as well

    http://www.zerohedge.com/sites/default/files/images/user5/im...

  • Report this Comment On February 09, 2012, at 6:38 PM, TMFHousel wrote:

    whatevmatil:

    Payroll tax collections are down because there was a payroll tax cut.

    http://www.irs.gov/newsroom/article/0,,id=232590,00.html

  • Report this Comment On February 09, 2012, at 6:44 PM, Darwood11 wrote:

    Morgan, good analysis.

    My spouse has noted that the restaurants are packed (how about a 2 hour wait at an "Olive Garden" no less)!

    I do a lot of travelling for business in the US. What I've noticed is this economy is very "dichotomous." For those who are doing "well" they are hitting the restaurants, the bars, and the malls. The rest seem to stay at home and attempt to save a few $$$.

    On the other hand, even McDonald's is showing some real economic improvement. Their breakfast menu sales has been up; that's an indicator that more people may be going to work.

    It will take a long time for personal debt to "unwind" and that's not an instant process. The savings rate has generally increased and I find that to be a positive signal. One cannot save if one has to spend every dollar to meet the bills.

    As to how robust this economy will be, I think we'll have to wait to see if all of those so called "difficult" manufacturing jobs can be filled. I'm unaware of statistics which show how we are doing in that area. However, there has been more and more conversation about how there are perhaps 1 million unfilled technical and manufacturing jobs out there.

    I suspect if this country is to get it's jobs house in order, there is going to have to be a change on the part of parents, students, schools and of course, the politicians who seem to thrive on parroting old data, misinformation, or worse.

    I also wonder what will happen when the boomers begin retiring "en mass." There are supposedly 75 million of them, and we have "unemployment" of about 14 million. The question is, can the boomer jobs be filled by the ranks of the unemployed? At present, if I am any indicator, I would say the prognosis isn't very good. I'm a systems engineer and at 66 I'm working because there is a true lack of skill and ability "out there." I fear the day the economy will really kick in. I'll be expected to work 60+ hours a week. You think I'm kidding? I once worked 183 billable hours in two weeks, and I've worked as many as 32 continuous days. I don't want to do that anymore!

    It's time for someone else to step up to the plate!

  • Report this Comment On February 09, 2012, at 7:17 PM, joaquingrech wrote:

    Morgan, the only reason I don't name a kid after you is because I don't have any :)

    Keep them coming, yours are truly great articles.

  • Report this Comment On February 09, 2012, at 7:43 PM, Hawmps wrote:

    Morgan, as always I enjoyed reading your article. You are very thorough and provide excellent resourses. Charts from Calculated Risk are very interesting.

  • Report this Comment On February 09, 2012, at 7:46 PM, maiday2000 wrote:

    We ran up $5 trillion in debt and all we got was a lousy 2 million jobs? I don't know about you, but $2.5 million per job doesn't sound like a good deal to me.

  • Report this Comment On February 09, 2012, at 8:15 PM, dag154 wrote:

    ^ Maday 2000 congratulations on writing the stupidest comment of the month.

  • Report this Comment On February 09, 2012, at 9:03 PM, kyleleeh wrote:

    <<I also wonder what will happen when the boomers begin retiring "en mass." There are supposedly 75 million of them, and we have "unemployment" of about 14 million. The question is, can the boomer jobs be filled by the ranks of the unemployed? At present, if I am any indicator, I would say the prognosis isn't very good. >>

    That's a very good point that. In ten years we may have a glut of jobs open and a labor shortage. Further proof about the dangers of taking current trends and extrapolating them into infinity to predict the future.

  • Report this Comment On February 09, 2012, at 9:04 PM, kyleleeh wrote:

    * That's a very good point.

  • Report this Comment On February 09, 2012, at 9:21 PM, TMFGortok wrote:

    @DJ, to address your points:

    Regarding point #1:

    "1) You assume that reductions in increases will not suffice, yet the implicit assumption there is that the economy will simply fail to grow. We never paid off the debt accumulated during World War II, we simply grew faster than the debt service and eventually it faded to virtual irrelevance before Reagan exploded the deficit."

    It's not a hard assumption to make, given that unless we end this fiat money system, we will have extreme boom and busts. Right now we're 'safe' because the dollar is the reserve currency of the world. This will not always be so. The more we go into debt, and the more the world thinks we will be unable to pay our debt, the less likely they will be to buy our debt.

    What is it Keynes said? "In the long run, we're all dead." We're rapidly approaching that point, where we will default on our debt through inflation (the act of printing money). We will be held accountable for that by the marketplace.

    Regarding #2:

    2) "Savings should drive investment -- not cheap money." That's a moral judgment, not an economic one. If I'm a business, and I can take advantage of cheap money to make investments in my business which then yield a return, I've done the smart thing. On the flip side, don't think bubbles didn't occur before the advent of fiat currency.

    Interestingly, if we were ALL savers, the economy would collapse. By definition, for an economy to function there needs to be spenders as well savers; there needs to be debtors as well as creditors. You must not fail to take that into account.

    Of course bubbles occurred -- you'll never get rid of bubbles. But what you do get rid of is the bubbles being blown up so large and falling so hard. There were frequent crashes before the advent of the federal reserve, but the crash did not last very long. There has never been a fiat currency that has survived debasement in the history of this world. I don't expect the USA will be the first to buck that trend.

    But not only is it a moral judgement, it's also an economic judgement, and it's where you and I differ (and one of the many places where the Keynesians and Austrians differ). Real growth does not come from borrowing money you do not have, it comes from people saving money, and other people investing that saved money into projects. Should the projects fail, people lose their money. Without the 'safety net' in place, people have to be much more careful about how they invest, and thus are better shepherds of money. With this highly regulated system and the moral hazard surrounding it, we're practically begging banks to play loose with our money. What's the worst that happens if they fail? Nothing. They get bailed out. The depositors have 'insurance', and the only people that lose out are the citizens, as the debt is monetized by the taxpayer.

    Regarding #3:

    4) Ron Paul's plan would decimate the public sector. I realize that for some reason people think those jobs don't "count" as real jobs

    There are two very important points to remember.

    1) The government cannot create wealth. It can only take from one person to give to another. These public sector jobs are paid for by money taken from the taxpayer.

    Let me make it personal for you. I pay 28% (probably closer to 35% once state taxes are brought it, and probably closer to 40% once you factor in sales taxes) in taxes. That means that I have to work for nearly 4 months before a dime of what I earn is truly mine. That means that if my child is sick, or my wife is ill, or I need to buy something for my family, I can't do it. I have to live on less. I have to struggle so that we can have these public sector jobs.

    Before 1913, what you earned was yours to keep. Now, your money is taken from you before you have a chance to use it -- you no longer work for you, but for another.

    I accept that a government is needed to enforce the rights of the citizens, contracts, and private property rights, and that entails a very limited government. But there are entire departments that are neither constitutional nor do they even need to be addressed by the federal government.

    As Ron Paul states, the jobs will be reduced through attrition; but they will not be put on the street overnight. The economics of private sector vs. Public sector is for another discussion, and I have plenty of source articles to share with you on that subject if you're so interested. I've read the Keynesian arguments for government and spending, and I find that they lack the moral character needed for a truly 'enlightened' society.

    So long as you use force to take from one person to give to another, it is stealing. It is not 'ok' because you have good intentions.

  • Report this Comment On February 09, 2012, at 9:32 PM, TMFHousel wrote:

    Just as a general observation, all rationality tends to be lost when people group themselves into saying "I'm Austrian" and "You're Keynesian." It goes from a debate into sporting match -- my team against yours. Both "sides" have merits and weaknesses. If you can't agree with that, you've willingly closed your mind.

  • Report this Comment On February 09, 2012, at 9:32 PM, CaptainWidget wrote:

    People spending money =/= fixed economy.

    People are spending again....but no one became more productive in the aftermath of the recession. They just took a few years off their extravagent lifestyles and now, thanks to 0% interest rates, they're able to start borrowing again to go eat at Olive Garden and buy new cars they don't need.

    Inflate--->Crash

    It's a weird cycle....I'm surprised no one has caught on yet.....

    But yes, the numbers are getting better. They always do....until they don't.

  • Report this Comment On February 09, 2012, at 10:12 PM, CaptainWidget wrote:

    <<Do you people really think your hide would be safe in a laissez-faire world? Take a look around.>>

    Yes I'd be fine in a laissez-faire world. I'm sure you would too. Even if you don't believe in yourself, I do. I'm sure that with the proper market signals and incentives, you'd begrudgingly do your own research and become your own advocate as well.

  • Report this Comment On February 09, 2012, at 11:09 PM, bettor2win wrote:

    I believe the economy is getting better, BUT!!!!!! REMEMBER, IT'S AN ELECTION YEAR.

  • Report this Comment On February 09, 2012, at 11:20 PM, CaptainWidget wrote:

    I don't know, what does a crime ridden hell hole have to do with laissez-faire capitalism?

    I suspect that crimes would still be illegal in a laissez-faire capitalist world, no? Your thought process is somewhat contradictory.

    That's the point of a laissez-faire world, right? The less things that are illegal, the less crime exists. The less things that are subject to voluntary market forces, the more natural (and profitable) behaviors will be driven underground and into the mano-a-mano self-justice system.

    And I still think I'd be fine either way. And so would you. You're apparently awesome at writing blog posts. That's a marketable skill that would allow you to buy a huge mansion in a gated community, well above the fray in the unwashed masses of free market capitalism.

  • Report this Comment On February 09, 2012, at 11:37 PM, easystreet70 wrote:

    you don't fix problems by adding $7 tn in debt in four years, or printing trillions in paper fiat...these might provide temporary relief, but at what cost?

    i can blast obama for his policies because i refused to give bush a pass for his awful mistakes....how many overt partisans have the courage to do the same?

    seriously, if you truly believe the home team can do no wrong, then you really shouldn't be condemning anyone else, for anything.

    maybe it has always been this way in america...but there wasn't always message boards to confirm the stupidity.

  • Report this Comment On February 09, 2012, at 11:56 PM, CaptainWidget wrote:

    <<The point is, CaptainWidget, the longer this goes on the more wealth gets concentrated at the top, and the more we begin to have an "aristocracy" created by privilege and wealth.>>

    The aristocracy are people that are above the law. In a free market society, anyone is free to reach that top 1%, and anyone is free to leave it through attenuation or mismanagment or any other reason.

    As long as the laws are applied equally, there's a lot of mobility between economic strata. I have personally met people who have went from top 5% to bottom 5% and back to the top 5% all within a single lifetime. It's an extreme example, but there is plenty of mobility within those economic circles within the US.

  • Report this Comment On February 10, 2012, at 12:01 AM, slpmn wrote:

    There is no better place to observe intelligent people who look at the same things and see them completely differently than the comments to Housel's columns. I know which "side" I'm on, but I have to give credit to the other for making it interesting.

    Ron Paul this, Austrian that, Keynesian whatever - May the markets go ever up. Cheers-

  • Report this Comment On February 10, 2012, at 12:23 AM, Merton123 wrote:

    Excellent Article - I wished you had written it on Friday so it could play out during the weekend. Just look at the response during one day.

    The Wall Street Journal had a recent article about the job recovery. They stated that the majority of the new jobs created were in health care and didn't pay a lot. The Wall Street Journal had an another article about Catepillar closing a plant in Cananda and moving the work to the USA.

    The majority of people will work in low paying jobs. These people after work will go home and watch 6 to 7 hours of shows on Netflix. With the legalization of Marijuana the population will be kept very docile.

    This will provide an opportunity for people who don't get hooked on T.V. and marijuana to become the managers and enjoy a more prosperous life.

    The 1% have it right. They just don't realize that there is a reason why the masses are poor and the 1% are wealthy.

  • Report this Comment On February 10, 2012, at 1:05 AM, TMFTomGardner wrote:

    Great article, Morgan. One of the greatest ways to profit as an investor is to find a company where the rate of declines are slowing. There's usually so much negativity because of the declines that the crowd doesn't bother to look for the deceleration of a downturn. Good things often follow. (With the one dread factor still being our levels of debt across federal, state, city govt; corporate debt; and, I think, most of all, consumer debt!).

  • Report this Comment On February 10, 2012, at 4:56 AM, CaptainWidget wrote:

    <<In the face of the FACTS I posted above, how does one bury one's head in ideology and ignore what is obviously happening?>>

    The facts are that the income BRACKETS are growing disparate (become of the incentives and punishments associate with those brackets) but the actual HUMAN BEINGS that reside within those brackets are highly mobile.

    An except from Dr. Thomas Sowell....

    http://www.youtube.com/watch?v=Qi8clPrg7kc

    For the tl,dr crowd, a snippet....

    "...recent data from the IRS show that more than half the people who were in the top 1% in 1996 were no longer there in 2005. Among the top 100th of the 1%, three quarters of them were no longer there at the end of the decade."

    People move around in the income brackets constantly. Many who start life poor end life rich. Many who become rich in the middle of their life settle into relatively modest earnings towards the end. Some people who start life rich piss it all away and end life impoverished. I've seen all these scenarios with my own eyes, and the data on ACTUAL TAX RETURNS (not household returns, or income brackets) backs this.

    There is plenty of mobility within our social system. This site is proof of that. 60K people trying to figure out a way to get richer, many succeeding and more failing. That's capitalism.

  • Report this Comment On February 10, 2012, at 8:33 AM, itsratso wrote:

    it really makes me angry that a lot of people's views of if we're in a recession or not clearly have nothing to do with the facts and everything to do with their politics. on both sides.

  • Report this Comment On February 10, 2012, at 9:06 AM, DJDynamicNC wrote:

    @TMFGortok:

    >>> It's not a hard assumption to make, given that unless we end this fiat money system, we will have extreme boom and busts. <<<

    I find it hard to argue that the Great Depression did not constitute an "extreme" bust.

    >>> Real growth does not come from borrowing money you do not have, it comes from people saving money, and other people investing that saved money into projects. Should the projects fail, people lose their money. Without the 'safety net' in place, people have to be much more careful about how they invest, and thus are better shepherds of money. With this highly regulated system and the moral hazard surrounding it, we're practically begging banks to play loose with our money. What's the worst that happens if they fail? Nothing. They get bailed out. The depositors have 'insurance', and the only people that lose out are the citizens, as the debt is monetized by the taxpayer. <<<

    These are separate issues that you are conflating.

    First, the notion that "real" growth does not come from borrowing money that you do not have. Attaching the modifier "real" there is a cop out. This is the traditional response from Austrians - some growth doesn't count, some jobs don't count, some forms of money don't count, and so on. You're free to believe that, but please be aware that it's an arbitrary distinction you've selected for yourself. For the government employee, that paycheck is a paycheck and pays for real goods and services. For the the business that takes out a loan, that money is real money and buys real capital investments. For government engineer, that funding is real funding and builds real infrastructure that allows real businesses to employ real people in the quest for real growth.

    The second issue is one in which I find you and I to be in complete accord - so long as we have "too big to fail" and government bailouts without accountability for underperforming banks, we have both a moral and economic hazard. I'd wager our proposed solutions are different - you'd prefer bankruptcy and I'd prefer nationalization - but we both identify and concur on the problem.

    >>> The government cannot create wealth. It can only take from one person to give to another. These public sector jobs are paid for by money taken from the taxpayer. <<<

    Again, that's a false framing. To say the government cannot create wealth is to simply decide - arbitrarily - that the work done by government employees with government funding has no value. That's false.

    In fact, you yourself accept that there is a role for government:

    "I accept that a government is needed to enforce the rights of the citizens, contracts, and private property rights, and that entails a very limited government."

    If I invest in a company that allows other companies to prosper, I am making money and wealth is being created. Or if I invest in an insurance agency which provides support in times of disaster for companies, that is creating value both through fostering a secure business environment and through providing jobs to administer the policy. By the same token, if instead I invest (through taxes) in an entity (the government) to provide these services, that creates real jobs and has a real impact on the real business environment. It doesn't just magically "not count" for arbitrary reasons.

    I mean, on the weekends I'm an entertainer and I make money off of, basically, getting drunk and playing music. Am I creating real wealth? Sure - that adds value for people and they trade their money for it all the time. But if that counts as wealth, then surely a government-employed engineer building a levee creates wealth?

    >>> But there are entire departments that are neither constitutional nor do they even need to be addressed by the federal government. <<<

    Which departments, specifically, are unconstitutional? And why has the Supreme Court not found them unconstitutional?

    >>> As Ron Paul states, the jobs will be reduced through attrition; but they will not be put on the street overnight. The economics of private sector vs. Public sector is for another discussion, and I have plenty of source articles to share with you on that subject if you're so interested. I've read the Keynesian arguments for government and spending, and I find that they lack the moral character needed for a truly 'enlightened' society. <<<

    This is exactly my point. You have created a moral standard and then proceeded to judge others against it. That's fine, but you've conflated it with economic thinking. By definition, applying an arbitrary moral standard inhibits your ability to address the real world objectively.

    >>> So long as you use force to take from one person to give to another, it is stealing. It is not 'ok' because you have good intentions. <<<

    Agreed. Can you point me towards the government agency which prohibits you from living in a nation which does not conflict with your economic ethics? Can you show me which election you were prohibited from voting in based on your beliefs?

    Just because your viewpoint doesn't win elections doesn't mean it's not allowed to compete. Just because you don't want to leave America and all that it provides for you doesn't mean you aren't able to.

  • Report this Comment On February 10, 2012, at 9:38 AM, TMFGortok wrote:

    @DJ You realize that the fiat money system is greatly responsible for the Great Depression right? (see: http://mises.org/daily/3515 for details)

    The artificial bubble created by the Federal reserve lowering interest rates to near zero was not real growth. If it were, prices would not have collapsed to what they were pre-boom. Understanding the role the Federal Reserve plays in the business cycle is paramount to understanding what constitutes actual growth, and what constitutes growth that will crumble and fall as the malinvestment becomes apparent.

  • Report this Comment On February 10, 2012, at 1:31 PM, DJDynamicNC wrote:

    Testing

  • Report this Comment On February 10, 2012, at 1:33 PM, DJDynamicNC wrote:

    Well, something is preventing me from posting comments longer than a few sentences, so I'll hold off on my reply til that gets sorted.

  • Report this Comment On February 10, 2012, at 3:08 PM, DJDynamicNC wrote:

    It seems the site has eaten my reply; if it reappears, then I apologize for the double post.

    I've heard the "fiat money caused/exacerbated/extended the Great Depression" canard almost as often as I've heard "Roosevelt made the Great Recession worse." Such claims make these charts interesting:

    (LINK DELETED TO TEST SPAM THEORY)

    Of course, of even more interest is Sweden's rapid recovery from the Great Depression; Sweden, of course, fully embraced Keyne's suggestions, and was back to trend by 1934:

    (LINK DELETED TO TEST SPAM THEORY)

    Also of interest - Canada's Great Depression was second only to our own in terms of economic impact, and yet they did not even have a central bank until midway through the events of the Depression. How does that square with your theory that federal reserve banks caused the depression?

    I'd also like to point out that you're once again retreating to arbitrary redefinitions of what constitutes "real" growth. Growth that you would consider "real" can still crumble and fall in the face of market changes; growth that you would consider "fake" can still lead to major quality of life improvements for millions of citizens. It is easy to call that "fake" growth when it's not your family on the line or your house that was saved.

  • Report this Comment On February 10, 2012, at 3:11 PM, DJDynamicNC wrote:

    Aha, I was right! It was blocking me from posting with the links in it. Here are the links, cleverly disguised to appear as though they aren't links, in case you want to check my sources.

    First one is seekerblog DOT com SLASH 2010 SLASH 12 SLASH 05 SLASH gold DASH standard DASH the DASH great DASH depression

    Second is three "w"s followed by huppi DOT com SLASH kangaroo SLASH Timeline DOT htm

    Hope this works lol

  • Report this Comment On February 10, 2012, at 8:12 PM, CaptainWidget wrote:

    Is it really a "theory" anymore that the US federal reserve caused the great depression?

    The current head of the federal reserve, Ben Bernanke, admitted this in a speech in 2002.

    "Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again." - Ben Bernanke

    I'd say that throws pretty good weight behind the idea that bad monetary policy was the primary driver of the 1929 depression. It was exacerbated by a million other bad policies (the "great" depression was actually a pretty mild recession until the Smooth-Hawley tariffs were passed, but I digress). I think most rational people with no agenda fully agree that bad monetary policy implemented by the fed directly caused the crash.

  • Report this Comment On February 15, 2012, at 11:30 AM, okondrat wrote:

    I view the previous Stimulus pkgs as baby asprin. Any ill conceived stimulus pkgs for temporary relief are a waste of money since they usually create temporary jobs and are a source for fraud.

    The financial interconnections that dispersed the crisis thru the world economy is a past weakness and present strength. The main link pins (financial institutions) needed to be supported to keep everything from unraveling.

    Stimulus pkgs had no effect on the economy and any type of improvement we are seeing. All improvements in the economy are due to the preexisting strengths of the economy and the wealth that was built into our country over the past 20 years or so.

  • Report this Comment On February 16, 2012, at 3:59 PM, DJDynamicNC wrote:

    @Captain:

    Smoot-Hawley was a nasty piece of business, I'll agree there.

    Also, I compeletely agree with you (and with Milton Friedman) that actions by the Fed caused (or at least exacerbated) the Great Depression. Friedman was very clear that CONTRACTIONS in the money supply made the Great Depression much worse. I take it from your comment that agree with Ben Bernanke and Milton Friedman.

    It was this failure of traditional economics that prompted Keynes to write his classic text on the subject, published in 1936 (which is why it is so amusing to me to hear people blame Keynes for the Great Depression).

    I'm glad we're in agreement on this; sounds like you're really coming around to the dark side. :)

  • Report this Comment On February 18, 2012, at 11:12 AM, RMaichin wrote:

    Are we recovering ?? But at what expense ?? What is the total US DEBT.. What is the FEDERAL BALANCE SHEET.. How will this EVER be paid off ?? HYPER INFLATION ??

  • Report this Comment On February 20, 2012, at 8:32 PM, ChrisBern wrote:

    "Households and banks are relieving themselves of that debt about as fast as they can"

    Mostly from writeoffs and writedowns, though. The average historical savings rate (from 1959 to today) is 7.0%. In 2011 it was at 4.4%. That doesn't indicate households relieving themselves of debt. That's also down from 5.3% in 2010. How much was GDP improved in 2011 versus 2010 because of the 0.93% reduction in savings rate? Probably about $97B, which is not far from 1% of GDP--no small amount.

    Also how would the "recovery" look without the government stimulating to the tune of spending 40% more than it takes in? Without the Fed's ZIRP policy and hugely bloated balance sheet?

    Finally, where are the leading indicators? Your article does a good job at looking at lagging and coincidental indicators, which to be fair is the article's objective. But leading indicators are pointing to a probable recession, which will come as a major surprise to investors who are enamored with lagging and coincidental data.

    And none of this is sustainable. Not the deficit spending, the low personal savings rate, the Fed's balance sheet, rates near zero percent...none of it.

  • Report this Comment On February 20, 2012, at 8:44 PM, TMFMorgan wrote:

    <<Mostly from writeoffs and writedowns, though. >>

    Yep. that's why I used the word "relieved" and not "paid off." Though the distinction from a deleveraging point of view is irrelevant. They're getting rid of debt.

    <<Finally, where are the leading indicators? ... leading indicators are pointing to a probable recession>>

    That's news to the leading indicators:

    http://research.stlouisfed.org/fred2/series/USSLIND

  • Report this Comment On February 22, 2012, at 7:33 PM, Persuter wrote:

    By the way, in response to Gortok's insistence that fiat money causes longer depressions, it is worth noting that the longest economic contraction in United States history was the aptly-named "Long Depression" from 1873 to 1879.

    What caused the Long Depression? In part, the silver and gold standards.

    It is also worth noting that the Federal Reserve was more or less a direct result of the Panic of 1906. The idea that we had less instability before the Federal Reserve System is simply wrong - repeated market panics were the reason it was created in the first place. It may have contributed to the Great Depression, but in the long run the nation's economy has been far more stable in the century since its creation than in the century prior.

  • Report this Comment On March 04, 2012, at 4:23 AM, thidmark wrote:

    Great article, sadly and predictably followed by a bunch of partisan bullsh-t in the comments.

  • Report this Comment On March 06, 2012, at 3:05 PM, epeon wrote:

    I do think the economy is better than it was three years ago. It is still bad. Unfortunately, the Obama administration has caused a tremendous misallocation of capital. Reducing debt will do us no good if we replace it with government debt. Government debt that is heavily invested in green energy boondoggles. I think that is the real problem. We are not investing in things that make sense. so, the recovery is delayed.

  • Report this Comment On March 06, 2012, at 3:08 PM, TMFMorgan wrote:

    <<Government debt that is heavily invested in green energy boondoggles. I think that is the real problem.>>

    If by heavy you mean 0.001%, I concur.

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