Prosperity Is Just Around the Corner

Paul Krugman is now predicting that the recession will end by September:

June 8 (Bloomberg) — The U.S. economy probably will emerge from the recession by September, Nobel Prize-winning economist Paul Krugman said.

“I would not be surprised if the official end of the U.S. recession ends up being, in retrospect, dated sometime this summer,” he said in a lecture today at the London School of Economics. “Things seem to be getting worse more slowly. There’s some reason to think that we’re stabilizing.”

Please take note of the several caveats in the statement: “official end”, “in retrospect”, “some reason to think”. Said another way he’s saying that there’s some possibility that in early 2010, coincidentally as the midterm election campaigns start getting into full swing, that the recession will have been declared over in the third quarter of 2009.

I wouldn’t be a bit surprised. What that means in hard dollars and sense terms is another question entirely. Things like building permits, unemployment insurance claims, inventory changes, and stock prices are thought to be leading indicators, things that are bellwethers of economic recovery while employment is thought to be a lagging indicator, something that tells us that the economy has already recovered.

While I strongly suspect that there will be lots of people telling us that “prosperity is just around the corner” come the first quarter of 2010, I also suspect that things will look pretty bleak in the third quarter of 2009.

It also reminds me uncomfortably of Atrios’s “Friedman unit”, a time equal to six months in the future. I seem to recall that six months ago Nouriel Roubini was predicting that the recession would have ended in March 2009. I doubt that “Dr. Doom” would stick by that analysis now. Economics is a descriptive science rather than a predictive one and I think that Dr. Krugman is predicting a future description from a vantage point from which the third quarter of 2009 is in the past rather than anything that anybody would say feels like recovery in September 2009.

I still wonder what recovery will look like and how we’ll tell it from “the greatest economic crisis since the Great Depression”. The last few recoveries have been attended by phlegmatic job growth. If the inevitable recovery following this downturn follows suit, that means that millions of people will be out of work for a long, long time. I honestly don’t see the factors that would produce increased employment on the horizon.

The graphic at the top of this post is the “Prosperity Quilt”, created by Fannie B. Shaw nearly 80 years ago. People from all walks of life look optimistically around the corner for prosperity.