Can’t afford that new home theater system? Bummed that you had to forego the Dungeness crab for imitation crab meat? Don’t call it “making responsible financial decisions.” Instead call it an economic “slump.”
That’s what reporter Peter S. Goodman did on the front page of the March 21 New York Times [1] in an article claiming economic hardships are hitting “Main St.” as the economy slows.
“What is shaping up as the second recession of the 2000s is the product of declines in home values, which play a far bigger role in most Americans’ personal finances than the stock market,” Goodman wrote. “Households have borrowed against the increased value of their property to buy cars, send their children to college and add home theater systems.”
Goodman reported that Main Street Americans are scaling back on expensive weddings and gift items like “soaps and chocolates.”
Forget Hoovervilles and soup kitchens. The new sign of the economy in a “slump” comes when college basketball fans are forced to watch March Madness on a standard definition television instead of the latest high-definition screen.
On the bright side, the Times story managed to find some positives in the economy.
“For now, there are still pockets of prosperity across the country. Farmers are enjoying record crop prices as the adoption of ethanol makes corn a way to fill gas tanks, and as rising incomes in China, India and elsewhere spell growing demand for meat,” Goodman wrote. “The weak dollar is helping exporters and retailers that cater to foreign tourists.”
Unfortunately, one of those “pockets of prosperity” is causing inflation – as government mandates for ethanol have interfered in food markets.
“Poor people cannot afford what we’re doing with our ethanol strategy,” CNBC “Mad Money” host Jim Cramer told Hillary Clinton in an interview on February 27 [2]. “We’re raising the price of the staples that they eat. If we scrapped ethanol, half of our inflation would go away. Why are we allowing the ethanol lobby to destroy the affordability of people who want to eat chicken and beef?”
Goodman quoted Mark Zandi, Moody’s Economy.com chief economist, who appears in a lot of downbeat economic stories.
“It’s not hard to construct very dark scenarios, primarily because the financial system is in disarray, and it’s not clear how to get it all back together again,” Zandi said.
However, even Zandi seemed to see a light at the end of the tunnel.
“Despite fears that the odds for a particularly severe recession have now increased, Mr. Zandi still subscribes to the consensus that the economy will shrink only modestly during the first half of 2008, then resume expanding as more money washes through the system,” Goodman wrote. “That would limit the damage to the type of relatively modest recession that hit the economy earlier this decade.”
But there are prominent economists who aren’t predicting a recession. Lawrence Yun, chief economist for the National Association of Realtors, told the Business & Media Institute said he thinks we’ll avert a technical recession.
“Formally speaking, I don’t think we will have an economic recession of two consecutive quarters of GDP [gross domestic product] contraction,” Yun said.
Yun admitted the economy was facing difficulties and consumer sentiment wasn’t as high as it was before the housing woes set in, but he’s confident the economy will come back around sooner than later.
“One looks forward three years from now,” Yun said. “The condition will be much better than it is now. I think the recovery will take place, but it’s just the timing. When will it occur? It will be the second half of this year or the early part of next year.”