Mourning in America

In a piece in The New Republic, Stephen Rose writes about how the economy is set to roar in the near future. It is, Rose claims, Morning in America as Ronald Reagan put it. More likely, however, it is Mourning in America. The economic portents are not good.

Rose claims that four things indicate fast growth is coming. One is the rise in inventories. Inventories were cut when the recession first hit. Rose says that the rise in inventory figures means that businesses realize that more inventory is needed to handle the growth that is on the way. Somehow, I do not think so. Inventories rose because they have gone back to more normal levels. The fear of a depression and total economic collapse is mostly gone, so busineses are getting back their normal inventories. Indeed, this rise in inventories fueled much of the anemic growth in the private sector that actually has taken place since the bottom of the recession.

A second indicator of good things to come, according to Rose, is the rise in investment. Rose looks at the rise in the level of investment since the first quarter of 2009. Not surprisingly, investment is up from that level since the date chosen is the bottom of the panic following the financial crisis. Once it became clear that the entire economy was not going to collapse, some investment came back. More important, however, is the difference in investment between the last quarter before the recession began (4th quarter of 2007) and now. This shows no big rise in investment -- just the opposite is true. Normally, a vigorous recovery would promote massive investment. The fact that the economy cannot generate investment as high as the level just before the crash (a point when the expansion was many years old and tired), means that there is no big expansion coming. Rose is simply slanting the statistics to prove his predetermined conclusion.

Hopefully, the economy will continue to grow. A sputtering, wheezing sort or stagnant growth is the most likely. Personally, I hope Rose is correct and I am wrong, but I do not think there is much chance of that.