The Liberty Papers

Over the weekend, we learned that the current recession is on the verge of becoming the longest since the Second World War ended:

WASHINGTON – Factory jobs disappeared. Inflation soared. Unemployment climbed to alarming levels. The hungry lined up at soup kitchens.

It wasn’t the Great Depression. It was the 1981-82 recession, widely considered America’s worst since the depression.

That painful time during Ronald Reagan’s presidency is a grim marker of how bad things can get. Yet the current recession could slice deeper into the U.S. economy.

If it lasts into April — as it almost surely will — this one will go on record as the longest in the postwar era. The 1981-82 and 1973-75 recessions each lasted 16 months.

Unemployment hasn’t reached 1982 levels and the gross domestic product hasn’t fallen quite as far. But the hurt from this recession is spread more widely and uncertainty about the country’s economic health is worse today than it was in 1982.

And yet, I don’t think there’s anyone out there who is seriously arguing that the current round of unemployment, negative growth and tight credit is going to end anytime soon. In fact, the general consensus seem to be that it’s going to get worse:

“This recession is broader, deeper and more complicated than virtually anything we have ever seen,” Wachovia Corp. economist Mark Vitner said. “The whole evolution of the credit markets resulted in all sorts of complex financial instruments that are difficult to unwind. It’s like trying to unscramble scrambled eggs. It just can’t be done that easily. I don’t know if it can be done at all.”

He said he sees fear in the eyes of his clients.

“I’ve had people come up and hug me after a presentation, which is unusual,” he said. “I haven’t told them anything about how it’s going to be better, but they just feel better having a better understanding of what’s happening.”

Along the same lines, the World Bank reported today that the current recession in the U.S. is poised to go worldwide:

WASHINGTON — In one of the bleakest assessments yet, economists at the World Bank predicted on Sunday that the global economy and the volume of global trade would both shrink this year for the first time since World War II.

The World Bank said in a new report that the crisis that began with junk mortgages in the United States was causing havoc for poorer countries that had nothing to do with the original problem.

As a result, it said, nations in Latin America, Africa and East Asia have had not only their growth stifled but their access to credit as well.

The bank’s assessment for 2009 was grimmer than those of most private forecasters. It did not provide a specific estimate, but bank officials said its economists would be publishing one in the next several weeks.

Of course, you can’t gather two economists together without getting four different opinions, so there are some differing opinions out there:

The global economy is “approaching” a pick-up point as positive elements that could fuel growth have yet to be priced in, G10 central bankers said Monday.

“We have a number of elements that are suggesting that we are approaching the moment where you would have a pick up,” European Central Bank head Jean-Claude Trichet said in his capacity as spokesman for the G10 central bankers meeting at the Bank for International Settlements (BIS).

Along the same lines, Mark Perry, an economics professor at the University of Michigan, has been spending a lot of time on his blog Carpe Diem cataloging evidence that things aren’t nearly as bad as the screaming headlines would have you believe. Just in the past two weeks, for example, Perry has highlighted economics statistics which:

1. Seem to indicate that planned layoffs started to decrease in January;
2. Show that February layoffs were far lower than those in January;
3. Indicate that the dollar has reached a 4 1/2 high;
4. Evidence that home sales in Florida and California, two states hardest hit by foreclosures, are increasing; and,
5. That, according to the New York Federal Reserve Bank’s economic model, the recession could very well end in 2009.

So, who’s right ?

Well, I’m not an economist, I only play one on the Interwebs, but it seems to me that it may be time for a bit of a contrarian approach here.

Last year, before the credit crisis hit, the general consensus among economists was that the economy was in generally good shape despite all the evidence to the contrary. Now, led by the White House, it doom-and-gloom chorus is pretty much all that you hear. Now, it may turn out that these pessimistic assessments are accurate (in which case, the GDP and deficit projections in President Obama’s recently released budget will be revealed to be the nonsense that they are), but the truth of the matter is that they don’t really know what’s going to happen.

Economic forecasting is basically educated guesswork that isn’t all that more accurate than the weather forecast.

So, you know, take what you hear with a grain of salt.

Cross-posted at Below The Beltway