How can I be a Dynamic Optimist with all this information, as I'm quite
protractedly laid off myself.
0xD300AD7F
----- Original Message -----
From: "Technotranscendence" <neptune@mars.superlink.net>
To: "Extropy" <extropians@extropy.com>
Sent: Wednesday, August 08, 2001 7:42 PM
Subject: L is for Layoffs
> L is for Layoffs
> Peter Brimelow and Edwin S. Rubenstein, Forbes Magazine, 08.20.01
>
> Forbes Magazine, 08.20.01
> http://www.forbes.com/forbes/2001/0820/060.html
>
> Does "Hayek's Law" condemn the U.S. to a Japanese-like L-shaped recession?
>
> Are we in a recession, and if so, what shape will it have--V, U or L? It
> will be six months, or maybe a lot longer, before we know the answers to
> those two questions.
>
> The official government story is the economy is still expanding. But don't
> put too much faith in that. "When the Bureau of Economic Analysis first
> estimated real gross domestic product growth for the third quarter of
1990,
> it reported a positive number of almost 2%," says Randell E. Moore, editor
> of Kansas City, Mo.-based Blue Chip Economic Indicators Survey. "It wasn't
> until after the first of the following year that the 1990 third quarter
was
> revised to a negative number." So you can't be reassured by the fact that
> the average forecast of the 50 economists Moore tracks is a slow but
> positive 1.8% real growth in 2001. "The consensus typically doesn't
forecast
> recessions," warns Moore.
>
> Houses are still being built and cars are selling well. But whole
> industries, including capital goods, advertising and telecom, are in their
> own recession. Layoffs in June totaled 125,000; company after company
> reports billion-dollar losses.
>
> So let's look on the dark side. If we're about to enter a real recession,
> will it be a V-shaped recession like in 1980? That would mean a quick
break
> followed by rapid rebound. Or will it be a U-shaped recession like in
> 1981-82, in which the economy stalls and takes a painfully long time to
get
> going again? Or will it be an L-shaped one--a crash followed by a
protracted
> period of slow-to-no growth? Example: Japan in the 1990s, after the
1984-89
> bubble.
>
> Jay N. Mueller, economist at Menomonee Falls, Wis.-based Strong Capital
> Management, is an optimist (he still projects 1.5%-to-2.5% growth in 2001)
> who nevertheless worries about several potential causes of L-shaped
trouble:
>
>
> . The low personal savings rate, which sank to -1.3% in early 2001.
Capital
> gains financed spending. But now many investors have capital losses.
>
> . The high tax burden. The combined federal, state and local take was
32.6%
> of GDP in 2000, significantly above the World War II high of 30.8%.
>
> . The high debt burden. Business debt is 64.4% of GDP, up from 53.4% in
> 1994; interest on mortgage and consumer debt now consumes a near-record
> 14.3% of disposable income.
>
> . Excessive business investment.
>
> This may seem an odd concern. But excessive or misallocated investment
> ("malinvestment") is at the heart of a business-cycle theory that, at the
> time of the Great Depression, was a serious competitor with Keynesianism.
> Named after the birthplace of its two major proponents, Ludwig von Mises
and
> F.A. Hayek, "Austrian Economics" has attracted new attention with the
> discrediting of Keynesianism--and with the unusual characteristics of this
> postboom economy.
>
> "The world economies have struggled this year in accordance with Hayek's
> Law," says Mark Skousen, an occasional FORBES contributor and editor of
the
> Austrian-oriented financial newsletter Forecasts & Strategies. "Hayek's
Law
> states that the economy takes a long time to recover after an
unsustainable
> boom (1995-99). The excesses of the previous boom create an investment
> structure that cannot be easily dismantled and transferred to new uses."
>
> It's news to modern Austrian economists that Hayek had a law. But they do
> see a point to Skousen's coinage.
>
> "The expansion of the late 1990s and subsequent downturn are better
> explained by Hayek's theory than by any other business-cycle theory," says
> Roger W. Garrison, economics professor at Auburn University and an adjunct
> scholar at the independent Ludwig von Mises Institute in Auburn, Ala. "The
> artificiality of the boom probably dates to early 1996, when the Federal
> Reserve lowered interest rates even though the unemployment rate was at or
> near its 'natural,' or 'full-employment' level. The misallocations of the
> late 1990s entailed overinvestments in future-oriented and highly
> speculative projects--dot-coms and the like."
>
> Garrison also notes that the economy, ominously, seems no longer to be all
> that responsive to Federal Reserve stimulation. "All these features are
> consistent with Hayek's theory," he says.
>
> Another Mises Institute adjunct, Frank E. Shostak, chief economist for MAN
> Financial Australia in Sydney, Australia, argues that the severity of U.S.
> distortion shows in the record-high ratio of capital-goods investment to
> personal consumption (see chart, below). He predicts "a severe liquidation
> of capital goods production." Maybe you should short
semiconductor-equipment
> manufacturers.
>
> Depressing? Two more, even nastier, worries from the dark side:
>
> . The strong U.S. dollar. Continued strength may choke manufactured
exports.
> A break, on the other hand, may choke off foreign capital imports, which
> currently finance American government and industry to an unprecedented
> degree.
>
> . International weakness. Not only is there recession in some key markets,
> like Mexico, but there are also potential crises, as in Argentina and
Japan.
> AIG International economist Bernard Connolly has told clients: "The
> conditions seem to be falling into place for a global growth panic over
the
> next couple of months."
>
> Austrian economists still have a healthy respect for the power of monetary
> policy. Skousen even says he expects some short-term recovery because of
Fed
> interest rate cuts. But it will be "an artificial recovery that cannot be
> sustained."
>
> So: V, U or L? Distinguished Chicago school economist Milton Friedman, now
> at Stanford's Hoover Institution, thinks it will be a sort of V: "We are
in
> a mild recession, and there is a good chance that we will bottom around
the
> end of this year and go into a relatively mild expansion." Under the
> circumstances, that's a somewhat bullish thought.
>
>
>
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