Politically speaking, Phil Gramm’s “mental recession” remark was about the dumbest thing imaginable–which is why the McCain camp is running away from it as fast as it can (I liked McCain’s “Ambassador to Belarus” remark). But taken on purely economic terms his comments to the Washington Times weren’t all crazy. A quick run-through, after the break:
“You’ve heard of mental depression; this is a mental recession,” he said, noting that growth has held up at about 1 percent despite all the publicity over losing jobs to India, China, illegal immigration, housing and credit problems and record oil prices. “We may have a recession; we haven’t had one yet.”
First quarter GDP growth was in fact reported at 1%, and as I just wrote it’s likely to be higher in the second quarter. We haven’t had a recession declared yet by the Business Cycle Dating Committee at the National Bureau of Economic Research, but they never do that until long, long after a recession has begun. My prediction (which is worth precisely what you’re paying for it) is that they eventually will declare that one started late last year or early this year, but it’ll likely be W-shaped, with a period of growth interrupting two periods of economic shrinkage. If that’s the case, both of this administration’s recessions will have been Ws. Which would be a charming little coincidence, don’t you think?
“We have sort of become a nation of whiners,” he said. “You just hear this constant whining, complaining about a loss of competitiveness, America in decline” despite a major export boom that is the primary reason that growth continues in the economy, he said.
I sympathize with him a bit there. It’s not so much that we’re a “nation of whiners”–as nations go, I think the U.S. is generally on the optimistic, uncomplaining side. But we do tend to go through dramatic mood swings about our position in the world. Americans were way too triumphalist in the late 1990s, now we seem way too prone to believe that we’ve become a second-rate economic power. The reality is that the U.S. has been on a trajectory of relative economic decline for decades–simply because poor countries making the leap to rich-country status are going to grow a lot faster than developed economies like ours–but remain one of the most competitive economies on the planet. And there is in fact an export boom, but so far it hasn’t cut into the trade deficit much because we’re spending so much more on imported oil.
“We’ve never been more dominant; we’ve never had more natural advantages than we have today,” he said. “We have benefited greatly” from the globalization of the economy in the last 30 years.
Competitive yes, “dominant” no. The U.S. simply doesn’t call the global economic shots anymore as it did in the decades following World War II and even in the late 1990s. And I’m not sure what those “natural advantages” are that he’s talking about. We certainly have a lot less oil than we did 40 years ago. As for benefiting from globalization, Gramm’s right on a macro, national level. But those benefits have been distributed so unequally that a lot of Americans may wonder who the heck he means by “we.”
Mr. Gramm said the constant drubbing of the media on the economy’s problems is one reason people have lost confidence. Various surveys show that consumer confidence has fallen precipitously this year to the lowest levels in two to three decades, with most analysts attributing that to record high gasoline prices over $4 a gallon and big drops in the value of homes, which are consumers’ biggest assets.
“Misery sells newspapers,” Mr. Gramm said. “Thank God the economy is not as bad as you read in the newspaper every day.”
Misery doesn’t sell newspapers. I don’t know if Phil Gramm has noticed, but newspaper circulation is going down, fast. It’s certainly possible that the truly horrific economic situation in the newspaper business is making journalists especially gloomy. But that’s another story.