Third Summer of Recovery Is Already Over


Now you're supposed to believe the Recovery is upon us thanks to another uptick in retail sales, which increased 0.8 percent in March, according to the Commerce Department. But this mild good news is not particularly good, and it isn't news. As you read in Reason last November, the consumer-led recovery, according to standard models, has already happened: 

Consumer spending returned to its pre-recession level in the last quarter of 2010. As Robert Higgs, the Independent Institute's senior fellow in political economy and editor of The Independent Review, noted in a blog post this fall, Commerce Department statistics show that the rate of personal consumption expenditures was "continuing to grow" and as of the second quarter of 2011 was "even farther above its pre-recession peak." Real government expenditure for consumption and investment had also snapped back to its pre-recession level and in the second quarter "was running more than 2 percent higher" in real terms, Higgs wrote.

So why aren't Krugman and other Keynesian interventionists cheering? John Maynard Keynes' general theory teaches us that now should be Miller Time. According to the standard macroeconomic model, you revive a stagnant economy by closing the gap in aggregate demand. 

The more you look into Recovery belief, the more you see that support for the belief is as vague and hunch-driven as a weather report in the Farmers' Almanac. Here's a report about "growing optimism on U.S. recovery" that consists of nothing but bloviation from bank heads. And how's this for the hard gemlike flame of quantitative fact:  "The quirky fate of the economy proved to be the undoing of the markets last week. After cruising along fine for some time, the U.S. economy began showing signs of slackening, sending panic waves across markets."

Meanwhile, new jobless claims have blown through expectations again and small businesses are not even bothering to seek loans anymore. And after a season of gassy elevation, the National Association of Homebuilders reports that its builder sentiment index is headed down again

That last one gave rise to the delightfully kinky ZeroHedge headline "Housing Repenetrates Alleged Bottom As NAHB Index Misses By Most In 22 Months." I'm not sure it tells us much, however. All measures of confidence, sentiment and the like should be viewed with caution. And given the vast inventory of already built homes that are festering unsold, it makes sense that new home builders are not seeing much activity. 

But this is a reminder that there will be no recovery until real estate hits the floor. Until that happens, until sweet deflation works its magic, all these measures of mindless economic activity are as filthy rags and do fade as a leaf. 

Folks of a certain age remember how Vice President Joe Biden declared the middle of 2010 the "Summer of Recovery." That unfortunate phrase didn't even make it to the first back-to-school sale, but it came back for sarcastic abuse in 2011. Now it's just an old saw trotted out for nostalgia, to make fun of Biden and as material for Ciceronian tirades. Biden can't help being a fool, but you can. The Recovery is a bunch of baloney.