Blessedly, 2009 did not turn out to be the utter catastrophe many once feared it would be—no bank runs, no bread lines, no sport-hunting of the rich. But it’s far from certain whether the worst has been truly averted, or, to use a phrase that became fashionable, the can was merely kicked down the road. The signals are, at best, mixed. Jobs are still being lost, if not at the same wildfire rate. Many small businesses lack credit, not to mention customers. So what lies ahead?
Between the yahoos who tout every market uptick as the stirrings of the next boom and the doom peddlers who cling to their prophecies of societal breakdown, a consensus has cohered around what investment strategist John Mauldin, a hero of the blogosphere, calls “the muddle-through economy,” a protracted period of elevated unemployment rates and sluggish growth.
Consider the now-conventional analysis of the U.S. economy over the last decade: It was, we have had drilled into us, built on the swampy ground of real-estate speculation and the feverish spending of borrowed money. Okay, sure. But it was also about the explosion of information technology, the concomitant surge in productivity, and unprecedented access to low-cost labor, both domestically (Latin American immigrants) and globally (Chinese), which lowered the prices of goods and services for all Americans. These conditions, unlike the housing market, have not gone away.
Grant’s second cause for optimism is an observation about human nature, summed up by an epigram he borrowed from the late British economist Arthur C. Pigou: “The error of optimism dies in the crisis, but in dying it gives birth to an error of pessimism. This new error is born not an infant, but a giant.” As peculiar as our economic circumstances may seem to us right now, the way people behave has a certain reassuring constancy—which is to say, we freak out and then we get over it.
I knew a guy at Merrill who subscribed to Grant's Interest Rate Observer and let me read them. Such insights. Amusing economics reading too. But he missed the whole 90's boom due to his over-weening pessimism. Peter Grant was one of the first to complain about the serial bubble economy.
