Economy Ends Tomorrow! Optimists, Californians Hardest Hit

The Drudge Report today is a festival of economic scare stories: DOLLAR DROPS TO RECORD LOW! LINES FOR CASH IN CALIFORNIA! Which bank next? Stocks stay south on fear! Inflation up at fastest pace in 27 years!

Beyond telling us what we already knew ? that Matt Drudge and Andrew Breitbart continue to pack more good headlines above the fold than any newspaper in America ? what does this tell us? Perhaps that the surprising (to me, anyway) pessimism expressed by seven libertarian-friendly economic observers in our June issue was warranted.

But the Californian in me wonders if we are all (me included!) addicted to millenarial forebodings of impending collapse, all recent history to the contrary notwithstanding. With rare exception (so rare, in fact, that I can't think of one), panics about the United States being lapped economically by Japan, or Europe, or (soon enough) China, end up looking more than faintly ridiculous. As do most predictions of imminent U.S. demise, such as (to throw out one memorable example) this Esquire cover story by Walter Russell Mead warning that:

[T]he economic crisis now sweeping the planet may be the most important event—and the most dangerous ? since the Second World War. […]

For twenty-five years, the United States has been using its international influence to make the global economic system more and more like the laissez-faire free-market system of the twenties, and now we've got what we wanted: a system that is free to grow rapidly. And ? surprise, surprise ? free to crash and burn. […]

Until a few months ago, most [Asian countries] expected to keep getting rapidly richer. Now most of the overwhelming majority face huge economic losses, and for most of them, hope is quickly disappearing. Anger will take its place, and it is all too likely that political leaders in Asia will seek to direct that anger outward ? at the United States and its economic allies, who, after all, shaped the international economic system that produced this collapse. […]

Stock prices could easily fall by two thirds ? that's 6,000 points on the Dow ? and it could take stocks a decade or more to recover. Many investors could be destroyed; mass liquidation of mutual funds in a panic could wipe out some funds entirely. The carnage among growth funds and such high-flying sectors as Internet and technology companies would be appalling…. Housing prices would plummet, leaving millions of highly leveraged home and apartment owners sitting on mortgages that are worth far more than their homes. Millions of people would lose their jobs, and tens of millions more would watch their wages drop as employers frantically tried to cut back their payrolls. Many cities would face bankruptcy as their revenues collapsed.

That nightmare scenario was published in October 1998. Since then, Asia has been too busy creating scores of millions of jobs and lifting hundreds of millions of human beings out of poverty to get too pissed off at the U.S. and A. NASDAQ has indeed suffered the predicted collapse, but recovered enough to be higher than it was in October 1998 (as is the Dow Jones industrials index). The median home price in the Bay Area was $272,000 in October 1998; now, in a plunging market, the number is all the way down to … $517,000. And how many millions of American jobs have been created in the last decade? Still, full-time bears eventually guess right during a downturn.

For the record, as someone who both predicted the dollar collapse and believed fervently in the Y2K bug, I think that things will continue to get worse, especially as the housing mess continues to unwind (not soon enough for renters like me and Paul Thornton!) and entitlements continue to swell larger than Al Gore's neck. But I can't help wonder if that's more about a juvenile fondness for train wrecks than a sober assessment of an economy that, despite its many flaws, has consistently outpaced the doomsayers for what, a quarter century now?