The alphabet soup of economics; or why I'm an "Xer." (Editorial)

09

If you read as much as I do, then you, per chance, are as confused as I am. What I'm talking about is the state of our economy: where it is, where it's going and where it isn't going.

Personally, I don't have the answer, but sorting through what is being said by those who claim they have the answers is, in and of itself, a major challenge. You see, everyone has a model' these days. These models are supposed to tell us that if a, b or c conditions exist and if these conditions are surrounded by x, y and z circumstances, then the likely outcome will be either k, I or m. What they're really saying is your guess is as good as mine.

Today, we're being introduced to economic theories U," V" and W." These, I hear, were developed to explain how an economy responds during and after a recession. The V' theorists say that, historically, most recessions have been represented by a major downturn in economic activity, and after bottoming out, it is followed by an equally significant upturn in business conditions, thus the V' scenario and the song Happy Days are Here Again!"

More current economic thinkers say that recessions and rebounds are increasingly taking on the characteristics of the W." This theory holds that after a significant fallout of economic activity, the economy is most likely to bounce back somewhat. This is then followed by a more or less equal downturn, which after confidence levels are fully restored, will then experience a significant upturn. The middle part of the 'W' is probably best explained by Yogi Berra when he said, If folks don't want to come out to the ball park, there ain't no way to talk them out of it."

Now, in explaining our current economic situation, some say we're in a U' condition. This scenario has it that, after a fairly short recession, the economy doesn't bounce back quickly or dramatically, primarily because people aren't really sure if we're in or out of the recession. As a result, people and businesses react very cautiously until they become confident again that things are improving. If this is correct, we are currently somewhere in the bottom portion or on the far right of the U" curve poised to start our move upward. One of the peculiar things about our current situation is that it becomes a confidence builder for some.

Take the auto industry, for example. Its ace in the hole right now is pent-up demand' because consumers (like me) have let their cars get old (like mine) partly due to high costs (that's my excuse) and a lack of confidence. Today, the mean age of all automobiles being driven in the U.S. is 7.8 years with more than 43% being eight years old or older. So, while it's certain they would like to have the sales now, they have to figure the upside of the U' curve is just around the corner.

When it comes to the alphabet and economics, personally I'm an Xer.' Let's say that the upper left line of the X' reflects declining economic activity and the lower left line reflects an improving business cycle. Under this theory, where the two intersect is where we are now. We're at a point that we can call "selective opportunism.' That is, we can make decisions now, during this period of slow, plodding expansion that can determine which line of the right side the X" we will follow as the cycle continues.

I know it's a simplistic theory, but the fact is, in one way or another, we are always aimed at that midpoint. Or put another way, without sliding into the alphabet maze of modern economics, let me quote Ralph Waldo Emerson:

"This time, like all times, is a very good one if we but know what to do with it.

Enough said.