Fearing Fearing Fear: The Case For Common Sense and Focused Stimulus
Consumers cut back spending in November and increased their savings in anticipation of the recession’s bite. At a Christmas gathering last night a senior car exec from one of the “transplants” told me that people have gone from buying cars they want to buying only cars they need, and that there are a lot of miles left of the 16 million autos sold each year of the past few years. This is an evidence of the lingering impact of the panic of October and the fear about the economy spread daily by the MSM that, as ever, oversells every story including recession.
Congress can help change the car consumer crouch via the stimulus package, of course, by offering car buyers a price concession via the tax code, one that only lasts three months or six at most. If the president-elect announced it and guaranteed it, the cars would fly off the lots as they are extremely attractively priced. The same goes for home sales –if Congress makes purchase of a home a really good deal for the next six months, the recovery will be quick.
Lawrence Summers and the rest of the economic team know this. They know that “spreading the stimulus” around will defeat its purpose. Can the president-elect hold off his coalition of interest groups each demanding a slice of the stimulus pie and do the right thing by targeting a massive amount of stimulus on key sectors?
Brian Wesbury, chief economist of First Trust Portfolios, was on the program yesterday, and he thinks ’09’s recovery can begin almost immediately as the slowdown is largely based on fear that can dissipate quickly. My friend Richard McKenzie, an economist whose book, Why Popcorn Costs So Much At The Movies, is one of the best business books of 2008, also believes that the economy can turn on a dime and expand strongly in the new year.
Everyone of any sense agrees this is a recession, not a Great Depression. (Unemployment in the nation was above 25% in 1933, in Toldeo it was 80% –that’s a depression.) Most agree that there’s lots of cash on the sidelines, and extraordinary deals on the big ticket items –cars and mortgages– to be had right now. Stocks are a bargain as well.
Some in the media are hysterical, as per usual. Some on the left want to engage in a last frenzy of Bush bashing. Some in the Democratic Party see an opportunity to talk down the economy so as to talk up Obama’s success when the cycle turns.
But what we need is a lot of common sense from the incoming powers-that-be, and a repetition of the basic fact that the business cycle has been around for a long, long time, and the recessions it contains are unpleasant but not catastrophic for the country even as they fall heavily on individuals. Key points need to be made again and again, for instance: Madoff is a crook who has hurt a lot of people very badly, but his crime is not emblematic of investment professionals, and its impact is not significant on the overall market.
Which is why I hope the president-elect sticks with the Lincoln shtick and refuses the FDR imitation. We don’t need grave discussions of 1933 and fearing fear. We need common sense in the stimulus package, not theatrics to stimulate glowing packages on the MSM.