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The Downturnaround Is Here

Or is it? A worrier’s guide to our economic future.


How do you feel about the economy today? A little worse, maybe, than you did two weeks ago? But a lot better than you did in March? Things feel better to me too, but I can’t explain exactly why. It might be because for most of last fall, I walked around in an apocalyptic trance, and you can’t keep that up forever. I was bewildered by the breadth and intensity of the financial crisis. Among other odd behavior, I convinced myself that if I learned everything there is to know about things like credit-default swaps and “Pick a Pay” Option ARMS, I could defend myself against a dysfunctional future.

I crawled out of bed in the morning and checked the futures on Bloomberg. I read stories about Australian consumer confidence (going down!) and German business confidence (going down!). I stayed up late reading forecasts, mesmerized by the most severe points of view: Nouriel Roubini, the NYU professor hailed as a prophet for braving unpopularity and predicting the collapse years before it happened; Paul Krugman, the Times columnist who went from ritualistically bashing Bush to ritualistically bashing Obama’s bailouts; and cranks who believe the massive leveraging of the American economy will end in the obliteration of civil society. It was just pessimism porn, but I couldn’t get enough of it.

Then, suddenly, in late March, the clouds began to part. The stock market was up, spring was in the air, and I wasn’t overhearing quite as many of those anxious conversations in restaurants about the end times. Even my favorite doomsayers lightened up a bit. Roubini modified his most-dire predictions, calling the chances of a global depression slim. At a conference in Abu Dhabi, Krugman endorsed the new consensus that “the worst is behind us.” Though it’s been subjected to ample rebuttal, as well as ridicule, Federal Reserve chairman Benjamin Bernanke’s declaration in March that he detected “green shoots” of growth in the economy did help turn the tide of negativity. Now observers skim the good news off the surface of the bad: “smaller minus signs,” a “not-so-awful report,” jobless claims showing a “decelerating pace of decline,” corporate earnings “exceeding reduced expectations,” a real-estate market exhibiting “a lessening of adverse adjustment in value,” a world economy at “an inflection point.” The stock-market trough in March became enshrined as “the buying opportunity of a lifetime.” On CNBC, Larry Kudlow put it in terms his viewers could understand: “I’m just an outright bullish humanoid.”

My hysteria had dissipated as well, but I couldn’t fully embrace the religion of recovery. After all, the shops I pass on my way to work seem no busier than they were in November, and many have closed; friends are still losing jobs, to say nothing of the horrifying national jobless statistics; and I get creeped out by all the condo towers still under construction, the toxic assets of tomorrow. The news is often baffling. When the Treasury Department’s “stress tests” revealed that Bank of America needed to raise $34 billion, I was amazed to see the stock soar. I e-mailed a friend who trades distressed securities and asked him to explain it. “Defies the imagination,” he wrote back. “Funny thing is, we think the hole is at least twice that much.”


Just as troubling as all this bad economic news is the immense uncertainty that comes with it. Are we in a recovery or aren’t we? And what does that mean anyway? I went in search of an informed outlook I could believe in, talking to as many forecasters as I could, and zeroing in on four who have a demonstrated track record of getting things right and not merely indulging in the fashionable positions of the moment. Perhaps I shouldn’t have been surprised that they didn’t agree on much.

The Recovery Is at Hand!

Illustration by Kevin Christy
Robert Gordon   

Robert Gordon is no doofus optimist. In fact, the 68-year-old economics professor at Northwestern University says he used to be known as the school’s “house pessimist.” As the real-estate bubble developed, he warned his students that Americans could not indefinitely fund their lives by withdrawing equity from their homes. By 2007, he had grown so nervous about the trajectory of the economy, he says, that he removed his retirement savings from the stock market.

But lately, he’s been buying stocks. Recovery, he believes, is well on its way, a view that reflects what has become the mainstream consensus and spurred many investors to pour money back into the stock market. But it’s particularly significant coming from Gordon, who sits on the National Bureau of Economic Research’s business-cycle dating committee, which will eventually decide when this recession formally comes to an end.


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