We'll tell you when its over

Perhaps more economists should watch the movie Animal House. If they did they would realize it is the drunken frat boys of the world who decide when something is over, not the head honchos in charge.

I heard an economist on the radio saying that the recession is over and perhaps it is time to tell the consumer. This, in a nutshell, is what is wrong with economists and the economics discipline.

In our Wall Street bashing have we forgotten that consumers run this economy? Consumer spending is two-thirds of our GDP and has been since the 1940's with little fluctuation in its share of economic activity. Economists don't tell consumers when a recession ends, the consumers should tell economists.

Any good economist knows our current "recovery" is based on federal stimulus whether directly in the form of government spending, or indirectly where government spending props up automobile sales like through Cash for Clunkers (Hate it) or housing throught the first time homebuyer tax credit.

Long term growth will totally hinge on the private sector and only long term growth in GDP is a predictor of consumer behavior. Joe the Plumber doesn't care that GDP is rising when his own income is falling: His consumption choices are based on his perception of his wealth and the likelihood it will rise or fall. I don't know anyone who says, "Hey GDP is finally rising, now I can go splurge on a big screen TV".

This is where economists really get things wrong. Describing economic activity in macroeconomic aggregates like GDP, doesn't really tell us what is happening in the short run. And as we know, in the long run we're all the Grateful Dead.

Economists have long forgotten or ignored what the economy is at its most basic level. It is a collection of individuals acting on their own self interest making seemingly unrelated decisions and trades. When these individuals are not worried about losing their jobs or the decline in their wealth due to the housing market and their retirements, they will spurn economic activity.

So as a consumer and an economist, let me tell the others in my profession: We'll let you know when the economy has recovered, and don't hold your breath.