Monday, October 12, 2009

Interpreting "good news" on the economy

Brian Wesbury, Wall Street Journal:

When it comes to the economy and financial markets, good news has far outweighed bad news in 2009. Just about every piece of economic and financial market data is tracing out a V-shaped recovery. One would think that this would lead to a little more optimism from the conventional wisdom crowd, but it doesn't.

I have a feeling that the "conventional wisdom" amongst my former colleagues is that they would settle for a lower stock price if only they could have their jobs back!  Anytime I hear a working person say they can't wait for "the economy" to recover, I reach for my standard of living.

"The economy" is mostly an indicator of how wealthy people and their organizations are doing. This class can do well under a variety of scenarios, but it's important to remember that one of them is cutting the costs associated with their employees.

Because most companies are managed with a view toward compensating investors, the productive wealth of these enterprises is always distributed upward and away from ordinary employees by default. Though there are times when companies diverge from this formula, this isn't one of them: the stock markets are doing well because people are losing their jobs and their homes.

This is a cause for optimism amongst some observers, as it lowers the compensation demands of people desperate for work; and points toward a day when employers will be able to rehire at them at less expense. On that day, projected years ahead, recovery will be complete!

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