Corporate Think Tanks: Recession Ain't All That Bad!

Posted by Joshua Holland, AlterNet at 3:41 PM on January 21, 2008.

I've been awfully worried about the economy lately, but instead of soothing my anxieties with the sweet numbness of illicit drugs, I prefer to numb my jangled nerves by reading the rich economic triumphalism spewed out by right-wing corporate think-tanks.

You should try it. Give the American Enterprise Institute's Kevin Hassett a moment of your time, and he'll show you that recessions aren't all that bad. The following comes from his brilliant op-ed, "5 Myths About That Depressing R Word" (which ran on Sunday -- I'm a little late) …

David Mamet once told an interviewer that he got the inspiration for his 1984 Pulitzer Prize-winning play "Glengarry Glen Ross" from an account of a salesman's fatal heart attack, caused by a recession "so vicious the competition was for jobs and sales, especially among older men." However, for most Americans, the story is quite the opposite. Americans get healthier as the economy gets worse. Unemployment tends to increase during recessions, but economist Christopher J. Ruhm of the University of North Carolina at Greensboro has found that a temporary one percentage point increase in the unemployment rate leads to a 0.5 to 0.6 percent reduction in the mortality rate, or about 14,000 fewer deaths per year.

Why the health benefits? With more free time and less money on their hands, people tend to consume less tobacco, exercise more, prepare healthier meals and lose weight. In addition, they are much less likely to have car and other accidents, and to catch communicable and sometimes fatal diseases such as influenza. Among the top 10 causes of death in the United States, only suicide rates show a substantial unemployment-driven increase. Even deaths caused by heart disease fall substantially.

Thank God for the clear-headed scholars at America's leading right-wing think-tank. Clearly, the idea that recessions cause real people a lot of real pain is just another lie by the Bush-hating media. The reality is that there are two sides of the story -- those who can't make their car payments appear to be in dire straights, but they just don't appreciate the benefits of getting out there for a strenuous walk!

There's even more sunny news for Hassett in the WaPo:

An unusually large share of workers have been out a job for more than six months even as overall unemployment has remained low, a little-noted weakness in the labor market that analysts said threatens to intensify the impact of the unfolding economic downturn.

The lucky duckies! Think about all that healthful rest and relaxation those guys are getting!

As far as I can tell, putting a sunny spin on the increasingly bleak economic picture was the point of Hassett's exercise. After all, his 5 myths aren't really myths, and his "debunking" of them is decidedly lame and half-hearted.

For example, his first myth is that "we're already in a recession," which he contests like this:

The truth is, nobody knows. The responsibility for declaring the stages of the business cycle is informally held by that most dreaded of concepts -- a committee of economists. The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) uses a number of economic indicators, including personal income, unemployment, industrial production and sales and manufacturing volume, to determine the health of the economy. It's not true that they declare a recession if economic growth is negative for two quarters in a row.

The NBER determines the official starting point of American recessions -- the definition of recession as two or more consecutive quarters of negative growth is an unofficial benchmark that's used in countries all over the world. Hassett, who's written a book about this stuff, presumably understands the difference, or at least that the NBER doesn't call recessions in Romania.

Also, the NBER's official determination of the last recession was about four months too late, according to most economists, and they did revise their starting date after the fact to reflect that (in a move that some said was politically motivated; it put the starting date in the last quarter of 2000, making it the "Clinton recession").

Economist Dean Baker dealt with this better than I could last week:

Economists don't predict recessions. Almost all of them missed both the 2001 and the 1990-1991 recessions. Economists' predictions of a recession are a lagging indicator showing that we are in fact in a recession. The economists' predictions go along with a large collection of other data - rising unemployment rates, crashing house sales and slumping retail sales - all of which indicate that the economy has likely entered a recession. The fact that even economists now recognize the economy's dire straights just seals the case.

So why is AEI placing this kind of silly "5 myths" Op-ed? It's because we're not being dragged into a recession by a "sub-prime" lending crisis; the economy is taking a nose dive for a variety of reasons, and foremost among them is a deregulation crisis that was three decades in the making and the creation of which the myriad think-tanks of the corporate right -- like AEI -- played no small role. As Robert Kuttner put it:

The sub-prime mess, the huge risks taken by hedge funds, and the conflicts of interest that led to Enron and kindred scandals, are all the consequences of serial bouts of financial deregulation.

[SNIP]

The Glass-Steagall wall was devised to prevent a repeat of the 1920s' scams, in which banks made speculative investments, turned the debts into securities, and sold them off to unsuspecting investors with the blessing of the bank...

In the 1980s, regulators began allowing exceptions to Glass-Steagall. In 1999, Congress finally repealed it outright, permitting financial supermarkets like Citigroup to operate any kind of financial business they desired, and profit from multiple conflicts of interest.

[SNIP]

Meanwhile, the once staid and socially directed system of providing home mortgages was seized by financial wise guys and turned into another casino.... Mortgage companies that were exempt from federal regulation came to dominate the mortgage lending business… Through securitization, a mortgage broker could originate a loan, sell it to a mortgage banker, who would then sell it to an investment bank like Salomon Brothers, who in turn would package the mortgages into securities… Rather than diffusing risks (a course that economic theory urges on a prudent capitalist nation), however, securitization concentrated them, because everyone was making the same bet on real-estate inflation.

Shorter Kuttner: Saint Ronnie's (and HW's and Clinton's) obsessive and ideologically-driven deregulation broke the link between lenders and borrowers, and created massive incentives to write shaky loans that someone else would have to deal with later.

Which brings us back to the American Enterprise Institute, whose entire existence -- its raison d'etre -- is to deflect attention from the impact that the under-regulated brand of capitalism it pushes -- called "ravage capitalism" by some scholars -- is having on our society (OK, they support mindless militarism as well). The roots of the lending crisis share the same soil as the decline of working Americans' economic security, and AEI exists to make sure our attention remains glued to the Wizard and that we don't look at the Man Behind the Curtain.

AEI is just a cog in a larger machine, though. The facts do have a liberal bias, and conservatives have reacted to that by building an alternate reality, the creation of which is aided by the pseudo-scholars at shops like AEI. Fox is balanced, the rest of the media is biased to the left; Wikipedia has a liberal bias, so they set up Conservapedia to balance it; 99.9% of the world's climatologists believe man-made global warming is a huge problem, so Exxon-Mobile funds a network of climate change deniers to offer an "alternate" view. For over 30 years, scholars at think-tanks like AEI and Heritage have been the ostensible antidote to the liberal academy. The truth, of course, is that they're corporate-funded hacks whose ideologically-driven "research" would never hold up to peer review. They exist to muddy the waters, and they do it quite well.

The funny thing is that even Hassett can't quite bring himself to protest too much about these "myths"; he leaves us with this great concluding graph:

A better analogy might be to think of our economic future as being a road trip in a 1971 Ford Pinto. Our car might burst into flames in the next instant, there might be a truck in our lane around the bend, or we just might make it all the way to California.

Yes, our economy may resemble a 1971 Pinto -- a shoddy piece of mass-produced shit out of Detroit that was infamous for exploding on the slightest contact -- but fear not; at least we have our health.

****
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Tagged as: housing bubble, debt crisis, fed, deregulation, aei

Joshua Holland is an editor and senior writer at AlterNet.