Just Think of it as an Economic High Colonic
Larry Kudlow writes:
An Economic Cleansing
Recessions are part of capitalism. They happen every so often. We’ve had two in the last 25 years. And it looks like we are entering a third one after today’s jobs-loss report.
The unemployment rate went up to 5.1 percent. Non-farm payrolls have fallen for three straight months. Private payrolls have fallen four straight months. And the entrepreneurial small-business-oriented household survey is below its November peak, showing a loss of 678,000 jobs.
These are relatively mild job losses so far. So one can hope this will be a relatively mild recession. But frankly, no one knows for sure.
A lot of Keynesian economists expect the tax rebates will promote recovery. But I doubt it. It’s a demand-side nostrum where only about 20 percent of the checks will be spent. It creates no economic-growth incentives. The 2001 rebates were of little consequence, and it wasn’t until marginal tax rates were cut in 2003 that the economy recovered strong. Even worse, Papa Bush raised taxes in 1991, which retarded recovery.
As a guess, the recession began in November or December. The stock market is basically flat today. And with all the pessimism out there, investors may have already discounted the economic downturn, with the market reaching a low on January 22. It’s up about 4 percent since then, which may mean shareholders are anticipating a new economic rebound in the second half of this year.
Recessions are therapeutic. They cleanse excess from the economy. Think about excessive risk speculation, leverage, and housing. Recessions are curative: They restore balance and create the foundation for the next recovery. Despite the housing and credit problem and the sub-prime virus, banks are still lending to businesses. So we don’t have a genuine credit crunch across the board. That is very good.
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