Economic might & myths

[sukie]

Economic might & myths

Being an economic forecaster is as dangerous as being a weather forecaster -- the longer view you take, the harder it is to "see" the future. Nevertheless, economist Brian Wesbury must be doing something right when he looks in his crystal ball. The Wall Street Journal, where his smart and coherent op-ed pieces run frequently, named him the country's Number-One economic forecaster in 2001 and USA Today ranked him among the top 10 in 2004. Economics editor of The American Spectator magazine and a regular expert on CNBC, Wesbury is currently chief economist at First Trust Advisors L.P., a financial services firm based near Chicago. I talked to him by phone on Thursday:

Q: Should we be jumping out of windows or buying stocks right now?

A: We should not be jumping out of windows. We should be buying stocks, and I say that for two reasons: Number One, the market basically today is priced for almost the end of the world. The conditions that have preceded previous periods of rough economic times just don't exist. The other thing is, if you look back at the last 230 years of U.S. history, there has really hardly ever been a bad time to buy stocks -- especially if you are holding them for the long run.

Q: You say we are not in a recession and we are not even headed for one, right?

A: That is correct. Every single recession in the United States for the last 80 years has been preceded by a tight Federal Reserve policy -- in other words, excessively high interest rates. And we clearly don't have that today -- and by the way, I don't think we had it last year either; a 5.25 percent Fed funds rate was not too high. It was still a very low rate. Recessions are also preceded frequently by tax hikes or protectionism. So I would say that today we have very low interest rates, we have low tax rates, and we are not moving in a protectionist direction. As a result, those conditions that have led to recessions in the past don't exist. One last point: I know of no point in history where we have ever scared ourselves into a recession. It just has never happened before and I don't think it will happen this time, either.

Q: Is there a problem that is being overhyped by the mainstream general news media -- The New York Times, CNN, USA Today?

A: Yes, I think there are. The biggest one is this whole subprime lending issue. At its worst, and this is using the worst assumptions that I can make, it'll be about a $250 billion problem. I don't even think that we'll get to that level; that's the worst I can make it. $250 billion is less than .3 percent of all the economy's assets. We have a $14 trillion GDP. We have $100 trillion in assets. It's just too small of a problem to take the economy down. So I think we are blowing it out of proportion today and it is causing more fear than it should.


Lots more. Very good Q&A

http://www.pittsburghlive.com/x/pittsburghtrib/opinion/columnists/steigerwald/s_553801.html

[sukie]

Q: If we get a President Obama or a President Clinton, should we be terrified at what they might do to the economy?

A: Maybe my answer here will surprise you, but I am going to say "No." One of the reasons I will say no is that the president cannot get everything he or she wants. It will be easier for a Republican minority to hold up a plan of a Democratic president that would be bad for the economy than it would be for a Republican minority to hold up bad ideas of a Republican president. So I would argue that if you are in the minority in Congress you almost want the other party to be in control because it's easier to stop bad things. When it's your own party, it's harder to do, especially when we are talking about tax increases and things like that.

Here's the thing: If you go back in history, the stock market has had great times when the Democrats are in office and it's had great times when Republicans are in office. Bill Clinton is one of the test cases for this. When he first came into office, he tried to take the country left. He did increase taxes and he tried to move to national health care, but he was rebuffed and ended up turning back to the right. In his middle four years, he was the best free-trader -- along with Robert Rubin -- that we've had in a long time, as good as Ronald Reagan ever was. We got the capital gains tax cut and we had welfare reform. Those were all fabulous policies. I'd say he was the best "Republican" president in those middle four years that we've had since Ronald Reagan.

[treydawg]

I'm concerned about Obama wanting to raise the capital gains tax to 28 percent. That's absolutely ludicrous.

[sukie]

Repub Minority would crush that idea.