More from Cato’s Dan Mitchell on Keynesian stimulus. It is an excellent recap of the promises and failures of the current economy.
I disagree with his conclusion that we are almost certain to recover in 2010.
I have previously written about the phenomenon that regardless of what the Obama Administration does, economies tend to repair themselves. Evidence of this is the high unemployment level, bankruptcies, reduced output, reduction of debt, and the like. Mitchell likes to compare the historical average of past recessions and says they last about a year in length as the norm. The problem with that kind of analysis, the historical analysis that most economists rely on, is that this time it is different and you can’t always extrapolate from past experience to predict future events. It never works with precision.
And if you are going to use that kind of analysis, the work of Reinhart and Rogoff and Robert Barro demonstrate that financial crashes such as our present one, last on the average about 4 years.
My take is that the “recovery” we are seeing is due more from the impact of fiscal stimulus and that the evidence shows it is wearing off. Because unemployment remains high, the fact that the banking system has not yet repaired its balance sheets, and a fundamental change in consumer attitudes, I see a relapse this year.
Other than that, this video is excellent.
