Donald Luskin Reclaims His Title

by hilzoy

Even Donald Luskin, aka The Stupidest Man Alive (and inspiration for one of my rare attempts at parody), must be regretting publishing an op-ed called "Quit Doling Out That Bad-Economy Line" today:

""It was the worst of times, and it was the worst of times."

I imagine that's what Charles Dickens would conclude about the current condition of the U.S. economy, based on the relentless drumbeat of pessimism in the media and on the campaign trail. In the past two months, this newspaper alone has written no fewer than nine times, in news stories, columns and op-eds, that key elements of the economy are the worst they've been "since the Great Depression." That diagnosis has been applied twice to the housing "slump" and once to the housing "crisis," to the "severe" decline in home prices, to the "spike" in mortgage foreclosures, to the "change" in the mortgage market and the "turmoil" in debt markets, and to the "crisis" or "meltdown" in financial markets.

It's a virus -- and it's spreading. Do a Google News search for "since the Great Depression," and you come up with more than 4,500 examples of the phrase's use in just the past month.

But that doesn't make any of it true. Things today just aren't that bad. Sure, there are trouble spots in the economy, as the government takeover of mortgage giants Fannie Mae and Freddie Mac, and jitters about Wall Street firm Lehman Brothers, amply demonstrate. And unemployment figures are up a bit, too. None of this, however, is cause for depression -- or exaggerated Depression comparisons."

He then presents a bunch of data -- last quarter, he tells us, real GDP was up 3.3%. (He somehow fails to mention that the quarter before, it was 0.9%, and the quarter before that, -0.2%.) All sorts of things are really very good. So why don't people recognize that? He blames Obama. (Really. Obama, he says, is "Patient zero in this epidemic".) His conclusion?

"Whatever the political outcome this year, hopefully this will prove to be yet another instance of that iron law of economics and markets: The sentiment of the majority is always wrong at key turning points. And the majority is plenty pessimistic right now. That suggests that we're on the brink not of recession, but of accelerating prosperity.

Maybe this will turn out to be the best of times -- at least since the Great Depression."

Just for giggles, here's a compilation of some of Luskin's other predictions (h/t). They include:

* "So what words are left to describe a really big down day like Thursday? How about, "Stocks became a better bargain than ever!"" -- July 27, 2007 (DJIA closed at 13,265.47, 1843.47 points higher than Friday's close.)

* "If you see any financial stocks that have gotten run over by a bus in the last couple months — and then the bus backed up and ran over them again — you might want to consider taking a flier, and putting some money down by expecting the unexpected." -- Oct. 26. 2007 (see a chart of financials over the past year here, and tell me whether you think Luskin was right. Best I can tell, they've lost about a third of their value, on average.)

* "THE BOTTOM IS IN. Yes, I know I've been too early in saying to buy stocks during the correction from the October highs. But all the classic signals of a durable bottom are in place now. Let me count the ways." -- Nov. 30, 2007 (DJIA closed 13371.42, 1949.43 points above Friday)

* "On Wall Street, vultures don't go after dead things. They go after things that are alive and very cheap. And right now, they're going after troubled financial stocks in a big way, which means it's time to move in." -- Dec. 7, 2007 (see chart described above. Buy now, and you've only lost about 25%, on average, as of Friday.)

Just ten days ago, he truly outdid himself with a column called -- I am not making this up -- "GOP's Palin Could Be Savior of Stock Market".

But here's the truly scary part of Luskin's op-ed: "Full disclosure: I'm an adviser to John McCain's campaign".

I just hope he's their investment advisor.

Comments

[Warren Terra]

McCain's tolerance for hacks is rather extraordinary. Assuming Luckin isn't lying about having an advisory role, of course, which possibility should perhaps not go un-noted.

I obviously see no reason for McCain to want Luskin's advice, but I also see no reason for McCain to want to butter Luskin up by appearing to want his advice. At least Phil Gramm was a longtime colleague and possible personal friend who at one time had great fundraising connections and had continuing connections to the banking industry; Luskin is a partisan hack whose name could add no credibility, no new ideas, and no intellectual heft to the McCain campaign, and Luskin would be sure to denigrate the Democrat whether or not McCain courted him. It's not like there aren't innumerable Conservative economists in think tanks and in academia who could fill the advising role without serious risk of embarrassment.

But, of course, McCain is just surrounded by partisan hacks and appears not to be fundamentally interested in their actual qualifications or ideas.

[ThatLeftTurnInABQ]

He then presents a bunch of data -- last quarter, he tells us, real GDP was up 3.3%. (He somehow fails to mention that the quarter before, it was 0.9%, and the quarter before that, -0.2%.)

Whenever you see GDP figures being tossed around, remember that they have been adjusted for inflation, and there is great controversy right now over whether the right number is being used or even if official methods for calculating inflation have jumped the shark.

I don't really have a dog in that hunt - I've read what seemed like reasonable arguments both ways. The key point I take away is that GDP numbers need error bars and confidence intervals, and right now the errors bars are potentially larger than the purported GDP growth rate. We may turn out to have been experiencing negative real growth for several years, when (if) it is all sorted out.

[Steve J.]

Luskin is just astounding! I did a tiny bit of fact-checking on just one of his smiley-face claims and he's wrong again.

Why does this clown get to publish in the WaPo?

[bwaage]

Wow, that Palin one is brilliant. We've all been fools for thinking that the economy does better under Democratic administrations because we forgot that this only holds true if we don't count failed Republicans as Democrats!

[liberal japonicus]

Why does this clown get to publish in the WaPo?
To keep Gerson, Krauthammer and the WaPo's "ombudsman", Deborah Howell, company. Birds of a feather.

[John Thullen]

Luskin is the red, white, and blue clown cracking wise in front of the storefront payday loan office that has become Wall Street.

He's a favorite of Larry Kudlow, and oozes well-coiffed arrogance all over other guests on the program who dared to present nuanced views of the financial environment leading up to the current debacle.

He taunts.

I'd like a cage-match with him.

[Jesurgislac]

Okay, next Open Thread topic: who would you want to see in a cage-match with John Thullen, and how much could we raise for a good cause if we sold tickets?

[cleek]

That suggests that we're on the brink not of recession, but of accelerating prosperity.

something's accelerating. but it's not prosperity.

gas stations in eastern NC, while charging nearly $5.00/gal, were literally rationing gas this weekend. the stations we stopped at weren't letting you buy more than 10 gallons at a time.

yes, that's hurricane-related. but $5/gal is a pretty grim milestone. it makes $4/gal feel reasonable. i'm sure that breaks Exxon's gummy little heart.

[bedtimeforbonzo]

Cleek: "yes, that's hurricane-related"

The last I heard on CNN was that there was very little real damage to the oil operations in Gavelston and the nearby trouble zones.

I hate to see where gas prices would go if one of these hurricanes really wiped out the oil rigs and so forth. Scary.

[Bernard Yomtov]

Let's just think about this, as an example of Luskin's analytical skills:

that iron law of economics and markets: The sentiment of the majority is always wrong at key turning points. And the majority is plenty pessimistic right now. That suggests that we're on the brink not of recession, but of accelerating prosperity.

Or:

It is always dark an hour before sunrise.
It is dark now.
Therefore the sun will rise in an hour.

Stupidest man alive.

[Eric Martin]

and how much could we raise for a good cause if we sold tickets

I'm in for one large.

[bedtimeforbonzo]

John Thullen: "He's a favorite of Larry Kudlow . . ."

Back when I had money in the stock market and became a CNBC addict, Kudlow, if I remember correctly, used to think free markets were the answer to everything. I wonder what he thinks about the Too Big To Fail government bailouts. (I just heard a co-worker say the Dow is down over 300 points.)

Jes: I'd like to see Mr. Thullen's cage match be with that McCain spokesman that Campbell Brown flustered on air.

[John Thullen]

Bernard, it's worse than that.

Luskin is never pessimistic. His rule about going the opposite way of the majority (yes, that works as a general rule) is practiced by him ONLY when the crowd is pessimistic. There are miles of tape of Luskin waxing ecstatic to the bullishly converted when the crowd was, to a man and woman last year and at other turning points, uniformly optimistic.

But this isn't because of a sunny disposition, a la Reagan. It's because he is a shill for an ideology.

If astrophysicists predicted tonight that the sun would explode and liquefy the Earth, Luskin would recommend the stocks of sunglass and sunblock makers, heat shield start-ups, and air conditioner manufacturers ... for the long-term.

That said, no one knows the future direction of the stock market.

Luskin's gig is to act like he does, with exquisite, unctuous, bullying arrogance.

[Jacob Davies]

"That suggests that we're on the brink not of recession, but of accelerating prosperity."

What people who like to spout these lines are apparently unable to grasp is that past instances of "everything seemed direly bad, and then everything turned around!" often reflect the situation reaching a crisis point where action cannot be delayed and out of desperation a consensus forms on a sensible course of action.

It's like - to take a topical example that may be in rather poor taste - saying that lines of bright shiny homes a few years after a hurricane mean that all those pre-storm warnings about danger to life and property were overblown. Instead of realizing that they reflect only the necessary flurry of recovery activity.

(And someone like Luskin would probably say that that reflects "creative destruction" or some such; for some reason, conservatives always seem to support Keynesian spending initiatives only if they're done in emergencies, or after the crisis is already upon us. I've worked with people like this (doing online system operations) - who thrived and shone in emergency situations and therefore took little effort to preempt them during the quiet times - but I didn't realize at the time there was a whole philosophy around ignoring the wave until it's upon you and then declaring victory.)

[felix culpa]

Noah Millman has a good piece at American Scene. “The renovation after the fire is going to take years. Anyone who confidently tells you they know what it’s going to look like once that process is done has been paying as little attention to the financial crisis as, say, Sarah Palin has been paying to foreign policy."

Speaking of whom: Palin/Thullen cage match! We could all be millionaires! Billionaires!

[ken]

"That suggests that we're on the brink not of recession, but of accelerating prosperity."

I sincerely hope he is correct.

Heck, I sincerely hope he is half correct.

[Uncle Kvetch]

Obama, he says, is "Patient zero in this epidemic".

Classy guy.

[GailVortex]

Jes: I'd like to see Mr. Thullen's cage match be with that McCain spokesman that Campbell Brown flustered on air.

That would indeed be entertaining.

For about 10 seconds, before he was whimpering pathetically.

Sorta like a cage match between a wolf and a fluffy bunny.

There must be a worthier opponent.

[LFC]

John Thullen said... Luskin is never pessimistic. His rule about going the opposite way of the majority (yes, that works as a general rule) is practiced by him ONLY when the crowd is pessimistic. There are miles of tape of Luskin waxing ecstatic to the bullishly converted when the crowd was, to a man and woman last year and at other turning points, uniformly optimistic.

John, there is a technical term for this type of person. It is "pump monkey". Larry Kudlow is one too. (I wonder if the use of "monkey" is because of all the crap they fling at people?)

If you want to see them both change their tune instantly, just wait for a President Obama. Then the economy will continually be on the verge of disaster and everything that has transpired under GOP rule will be his fault. I can hear it now. "If we had just given George Bush's policies a little more time..."

With the proof in the pudding, anybody still ascribing to "Tinkle Down Economics" should wear a red nose, bright fuzzy wig, and giant shoes so we can easily pick him out at a distance.