Arnold Kling: Economic Recovery Will Be Fast

How about a little sunshine for a change. Keep in mind that this is opinion and flies in the face of a lot of current data but Arnold Kling is a pretty level-headed economist.

Writing in The Atlantic he makes the following observations:

Sudeep Reddy takes note of an important fact about the current recession:

1. Cutbacks in employment (and, I would add, hours worked) are sharp relative to the cutbacks in output.

In addition, I would point out that:

2. The stock of automobiles is aging, because hardly any new cars have been bought for the past year.

3. Household formation is falling, because people cannot afford to form new households.

4. The rate of homebuilding is way below the long-term trend.

All of these factors will turn around once economic growth picks up. Firms will find themselves needing to add workers in order to meet demand. People will have pent-up demand to form households and get new cars. Homebuilding will actually start to contribute positively to growth.

He also thinks that once Washington gets done with all of their deliberations about health care, cap-and-trade etc. there will be a lot less uncertainty in general which would be another positive. He thinks that commercial real estate and retail are still pretty ugly but overall thinks that once things stop going down the recovery will be brisk and steady. He says no double dip recession.

It seems that his predictions depend on a fairly robust increase in consumption. I think that it might play out that way initially as we bounce off extremely low levels but I’m not sure how much staying power the consumer is going to display. There will be a restocking recovery as firms have to replace depleted inventories so the early numbers when some growth does come may look deceptively positive. I think it will peter our and we’ll either find ourselves in the double dip or flat lining at a low level of GDP growth.

Nevertheless, Kling is a very, very smart guy so I wouldn’t discount his thoughts entirely.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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