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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Newsweek Says: The Recession Is Over!

The recession is over, Newsweek screams from the cover of its most recent issue, which is out today, and which you can read by clicking here.

Three things you need to know:

a) No, it isn't.

b) Magazines depend on rack sales for revenue.

c) Rack sales are driven by purposefully hyperbolic headlines, everything from "ELVIS LIVES!" to "The Recession Is Over!"

Once you read the story inside, you will see that Newsweek economics columnist Dan Gross hasn't exactly, definitively, proclaimed the end of the recession, now in its 19th month.

"The Great Recession," Gross writes, "is most likely over."

He admits this is a technicality. Recessions end when gross domestic product stops shrinking. And that may actually happen later this year. But he goes on to correctly state that unemployment will continue to rise, just as it has after the end of previous recessions, and it will still feel like a recession to millions of Americans.

The point of Gross's story, if not the cover headline, is to take a look at what kind of recovery Americans might experience after the recession ends, whenever it does.

Here's how he characterizes the White House plan for recovery:

"The Obama administration's strategy rests on what some might call industrial policy or excessive government intervention—or even creeping socialism. I call it 'the smart economy.' It means eschewing the blunt economic instruments we've always used and focusing resources and rhetoric on strategic sectors: renewable energy/green technology, infrastructure, broadband, and health care. It means making investments to run vital systems more intelligently and efficiently, thus creating a new infrastructure on which the private sector can work its magic. This philosophy, legislated in the $787 billion American Recovery and Reinvestment Act, holds that a mixture of targeted investments, tax credits, subsidies, reforms, and direct purchases can preserve or create jobs in the short term, improve America's economic competitiveness in the long term, and catalyze private-sector investment."

Now, many economists would not call monetary policy and tax cuts "blunt instruments." They would call them "tools." Tax cuts can be surgically applied: their duration can be decided, their target can decided -- consumers or businesses -- their level can be decided.

Gross's "smart economy" is based on spending or, as he puts it, "focusing resources and rhetoric."

Later, Gross writes: "Those on the right say the Obama plan can't work simply because it's directed by government."

That certainly is true of some right-wing opposition to Obama's stimulus plan, but not all, not by any stretch.

Many Republicans and fiscal conservatives don't like the stimulus plan because it substantially adds to the national debt. They don't like it because it -- and this was known from the beginning -- is too slow to act.

Not to mention, some free-market economists believe that boom-and-bust cycles are a necessary and desired part of a living economy, as opposed to a centrally managed one.

Gross correctly notes that much of the spending in the stimulus plan has gone to "green" and alternative-energy projects, high-speed Internet deployment and so forth -- none of which create a boon in jobs. "And while they do create jobs, many alternative-energy projects aren't particularly labor-intensive. Wind farms don't require armies of workers to maintain them," he writes.

This leads to another, even greater danger: the possibility that the federal government, under political pressure to reduce unemployment, will create make-work jobs and artificially inflate wages.

We have seen this before, and it was disastrous.

One of FDR's many alphabet-soup agencies designed to save the economy from the Great Depression was the National Industrial Recovery Act, which we've railed about here before. The NIRA allowed businesses to collude(!) to fix prices and workers (via unions) to demand salaries a good 25 percent higher than what the market was dictating.

The NIRA was enacted in 1993 -- the nadir of the Great Depression -- and was such a disaster it was repealed two years later. But its damage, academics have argued, was rectified only by the U.S. entry in World War II, in 1941.

That's why it's so worrisome to see the following quote in Gross's story, from Lawrence Mishel, president of the Economic Policy Institute: "The missing pillar in Obama's articulation is really making sure that people's wages rise in tandem with productivity."

The truest words in Gross's piece come toward the end: "To a large degree, the U.S. economy must now cope with an era of lower expectations. Road building isn't a recipe for full employment, green technology won't displace fossil fuels in this decade, the benefits of universal broadband may be overblown, and the dysfunctional health-care system won't shift overnight from a headwind to a tailwind. The recession may be over, but there's likely to be plenty of tough slogging ahead."

(Disclosure: Newsweek is owned by The Washington Post Co.)

-- Frank Ahrens
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By Frank Ahrens  |  July 27, 2009; 4:20 PM ET
Categories:  The Ticker  | Tags: Daniel Gross, Newsweek, recession  
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Last years car rebate is the Chairman Obama master bate. I drive a clunker and met a nice thunker. Public service and private misery are inseparably linked together. Money won't make you happy. It might settle your nerves though. Send more cash to your Ital buddies and we'll do the intel. Try keeping up with the damn losers Frank!

Posted by: Dermitt | July 28, 2009 11:23 AM | Report abuse

No the recession is not over, and for Newsweek to say so is absurd, costing the m even more credibility than they had before. I think the press should get hip to the fact that Obama has turned out to be a train wreck. He began with tremendous promise and has absolutely squandered it in six months. He has already spent as much as Bush did on the Iraq war -- $1 trillion. That cash he gave to the AIGs and to the UAW, and the other connected insiders, he could have given nearly $500,000 to every adult in the United States. Looking at it this way, his stimulus plan is absurd on its face.

Posted by: marcom_news | July 28, 2009 3:25 PM | Report abuse

The Depression has begun. The good news is that the presses keep rolling. My chair keeps rocking too. I guess it's a good time for bar gain hunting, so the beer will keep flowing. Run beer ads in the Newsweek is all I can figure. Beer is living proof, so keep proof reading. A few Jim Beam ads never hurt anybody. That's the bottom line on the top shelf. I'm happy on a shelf and plan on staying that way. Break out the laughing gas, we have tankers in the air for you. Cheers!

Posted by: Dermitt | July 29, 2009 9:20 AM | Report abuse

Market is down 66.66. Bigger drop for oil seen.

Posted by: Dermitt | July 29, 2009 1:44 PM | Report abuse

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