11/30/2007

Recession's Hidden Virtues

This article explains three of the main driving forces that may lead us into our next recession, the collapse of housing, increase in oil prices, and the credit crunch. I feel that a recession is very hard to predict. It seems that it could happen any time in a number of ways. There are so many different people telling me their opinion regarding recessions, that I am having a hard time deciding for myself what I think will happen. When we look at what has happened to our economy in the past we can analyze what happened and then explain why, but it is impossible to predict the future economy accurately because the variables are constantly changing as the world evolves. I don't think anyone knows what is going to happen; we can only make an educated guess.

6 comments:

Dr. Tufte said...

I have 2 thoughts.

First, as a macroeconomist, I can tell you that predicting recessions is close to impossible. All the people who "predict" these things are lying. Really ... just lying. You almost never hear academic macroeconomists ever talk about these things other than in terms of very loose probabilities. That's why on the news shows you don't usually see pundits who are macroeconomists - not giving an answer makes for bad TV.

Second, all the talk of recession is misplaced this time around. We may still get one - don't get me wrong. But, all that everyone is talking about is price changes. Yet, recessions are always about quantities of labor or machines or resources that are going unused. Yes, we have high oil prices, but I don't see cars not being purchased. Yes, we have problems in mortgage finance, but we don't see more than the normal number of houses not being lived in.

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Matthew said...

Dr. Tufte said that the all of the talk of this recession is misplaced. I think this is a good view to take. So many people get worried about any hint of economic distress, and thereby cause even more distress by their reaction! The average person would not think that, like Tufte said, we are still purchasing cars, still living in houses, etc. Now when those things stop happening, maybe we should start worrying, but it's nice to have a fresh look at thing when you focus on the output or end result.

carter said...

Dr. Tufte said that people that predict these things are lying. I agree I listened to the financial institutions tell me about the A.R.M loans and how they were going to be great for the economy and they are part of what caused the problem.

Dr. Tufte said...

It's May now, and the recession still isn't here.