Economic Pessismism on the Rise

Congratulations one and all, we’re doing a fine job of talking ourselves into a recession.

Thanks go to the media for acting like the kids in the back seat, unremittingly asking if we’re in a recession yet. Thanks go to Democrats, for looking for the slightest crack in the economy so they can stick it to President Bush and the Republicans. Thanks go to financial analysts who gladly deploy the most cockamamie schemes imaginable for predicting the arrival of the slide. Thanks to everyone who, apparently not content with the joys of prosperity, can be counted on to the find the dark lining in every silver cloud.

Thanks to ya’ll for knocking down the value of my house and drying up the real estate market just as my wife and I figure it’s time to downsize. Thanks for diminishing the value of my retirement nest egg. Thanks for weakening the American economy and increasing the chance of leading the world into a global recession. Is it dark enough for ya’ll yet?

Everyone seems to agree that the troubles began with and remain imbedded in the housing market. The conventional wisdom has been accepted that it is the fault of greedy mortgage lenders who began our “growing” credit crisis by giving loans to unqualified, unsuited, unprepared peasants. Now banks and financial institutions are tumbling, at least their stocks are, if not the institutions themselves. The Fed is ducking for cover under criticism that it’s “not doing enough” and foreign holders of American debt are getting ready to move their dough elsewhere. Blah, blah, blah.

Know what? It’s baloney. The housing “downturn” began well before the sub-prime problems hit. It began after the media, political and financial elites began comparing the run-up in housing prices to the “irrational exuberance” of the equities market. (Sure enough, after the elites asked often enough whether we can “sustain” the stock market run-up fantasy, the equities market crumbled.) The elites now have raised enough what-ifs and warnings about the dire consequences of a housing market that was responding to demand, that it effectively destroyed the demand while producing huge inventories of unsold homes.

It’s a cliché to talk about self-fulfilling prophecies, but it happened. Now, few people are willing to buy a house because they’re afraid they can’t sell the one they occupy. Sure, the problem was exacerbated later because people who had stretched their mortgage payments too far were now unable to afford the price of a new house. The conveyor belt of people moving up to better houses pretty much stopped. But it all began with the eating away of the confidence, at all economic levels, in the ability of Americans to sell their own homes.

How ironic, now, that the elites are jumping on the lending practices, when few of them raised a warning flag when those very practices were “enabling” people of all economic levels to “live the American dream.” And it did. More than all the various government housing assistance programs combined, the market was allowing record numbers of people to own their own homes. It was a dream shared by liberals and conservatives alike. Now liberals, at least, are happy because a desolate housing market means there are more people who are victims of  corporate greed, which they can blame on Bush, which they can convert into votes. And so forth.

In the current way of thinking, good news is bad news. It reminds me of my Irish Catholic roots, where tradition warns that you shouldn’t enjoy good times too much because bad times are approaching, even if they’re not. Bad times are punishment for enjoying the good times too much. Now that bad times have arrived, we’re happy because we knew it was going to happen, and now we’ve got something to crab about.

All of this makes me think that economics is a course that should be taught in the psychology department. I learned that more than three decades ago when I bought my first stock. Recommended by Merrill Lynch, it was a good company, ahead of its time (it was called Computing Software), but after some impressive gains, it took a dive. When I inquired about what had happened, I learned that it was the “sector’s” fault; another company in the same kind of business had some problems of its own that soon “weakened confidence” in the entire sector. The individual company’s performance didn’t matter.

Rack it up to confidence. Or lack thereof. 

Look back over the past several years. When the consumer confidence index was reported high, the elites questioned how consumers could be so dumb; don’t they know about the problems that will bring down the economy? When unemployment remained low and the economy was creating a healthy number of jobs, the elites said, yeah but, those aren’t the “good jobs.” Or yeah but, incomes aren’t rising like they should be. Or yeah but, too many jobs are going off shore. Orders for durable goods can be up, the economy can be growing at a healthy rate, recession can be nowhere in sight, business inventories can be low, but there’s always some elite around to say, yeah but. Pick, pick, pick and soon the wound is bleeding.

My wife is a realtor, so I occasionally get lessons about the realities of the marketplace. She saw how people stopped looking for homes well before the sub-prime mortgage crisis hit; no rational reason could explain it other than the drumbeat of elites who told them that the market was “way-overpriced” and that they would never get a good price for their homes. That it would take an exceptionally long time to sell their homes. The market would become devalued. And sure, enough, it all became reality.

This morning my wife told me that she was seeing some blips of activity in the housing market. Nothing to get excited about; it’s not a breakthrough. But for months, agents weren’t getting any calls from prospective homebuyers. Now, a few are coming. It should be good news.

But not, of course, worth reporting. Because we only report the bad news.