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Carlyle vs. Keynes: How Dismal Is My Science?

12:00 AM, Jun 1, 2013 • By IRWIN M. STELZER
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Back to more good news. Consumer confidence is at its highest level in more than five years. Consumers’ appraisal of both current and future conditions are cheerier than they have been since the recession began, and the portion of those surveyed who believe that jobs are hard to get is falling (more on that next week when the latest jobs report is published). Consumers are spending not only on houses and on cars, but on household appliances and the other stuff needed to convert the purchase of a house into the purchase of a home—personal consumption expenditures jumped 3.4 percent in the first quarter. Business spending on equipment (excluding volatile aircraft orders) is also up by 1.2 percent, not great, but enough to prompt Paul Ashworth, an economist at Global Economics in Toronto, to dub the latest report on durable goods sales “another sign that growth is holding up quite well.” Overall, the economy grew at an annual rate of 2.4 percent in the first quarter, not spectacular but well ahead of the 0.4 percent in the final quarter of 2012.

But all is far from well in this almost best of all economies, or at least one that is in far better shape than in the recent past. Hear this from the dismal set. The full impact of cuts in government spending is yet to be felt, and we don’t yet know “how well the economy fights through the significant fiscal drag,” warns Bill Dudley, president of the Federal Reserve Bank of New York. Increases in stock prices are far outpacing growth in the real economy and may be headed for a midyear swoon,” suggests AEI economist John Makin. Consumer spending cannot be sustained without a real increase in incomes, which has not yet occurred writes David Wessel, economics editor of The Wall Street Journal. Consumer confidence is a volatile indicator, and consumers often say one thing to pollsters and do another. 

In 1930 John Maynard Keynes characterized the Great Depression as a “nightmare which will pass away with the morning.” Policy might be in “a colossal muddle,” but “we remain capable as before of affording for everyone a high standard of life.” No dismal scientist he, and a reasonable model for others.

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