I Thought The Recession Was Over! Imagine That!
Economics has been referred to as the "dismal science". I've taken enough economic courses throughout the years, and have read enough economic history to subscribe to that term. Don't get me wrong! I enjoy the study of economics immensely, and at one point, I even had aspirations of becoming an economist. But in order to become a "serious" and "respected" economist, one has to go to an expensive Ivy League School and endure the drudgery of earning a doctorate. That just wasn't going to happen for me and I wound up doing other things throughout the years in order to make a living. I'm glad that I did in light of the economic crap that I'm hearing nowadays!
The economics discipline has been around for centuries, and in its early stages, economics was essentially a social science based on theories. It wasn't until the late eighteen hundreds and early nineteen hundreds that economists started incorporating, in earnest, mathematical and statistical techniques to predict economic outcomes and to formulate economic policy in an effort to make economics more of an actual and exact science like physics or chemistry or hydraulic engineering.
But in spite of all the sophisticated math and statistics, economists (with rare exception) were still not able to predict economic events such as the Great Depression, nor were they able to come up with an economic solution to the Great Depression. And economists, to this day, are not able to fully explain why and how the Great Depression occurred.
The difference between sciences such as physics and chemistry and hydraulic engineering, as opposed to economics, is that those who engage in the former can conduct their experiments (and therefore derive empirical knowledge) in a lab, whereas economists can only conduct their experiments using an entire country's (or the world's) population. Economics is indeed the "dismal science".
Investors on Wall Street sold off shares Monday as a chilly pessimism about the global recovery settled over worldwide markets.
Disappointing data about the confidence of American consumers, released Friday, deflated stocks and renewed concerns that battered businesses, having already cut costs to the bone, might struggle for revenue growth during the rest of this year. . By the end of Friday trading, those worries had pushed New York markets down for the week after a month of consecutive weekly gains.
The decline continued Monday, as the Dow Jones Industrial Average fell 186.06 points, or 2 percent, to close at 9,135.34. The broad-based Standard and Poor’s 500-stock index dropped 2.4 percent to 979.72, while the Nasdaq composite index shed 2.8 percent to 1,930.84.
As stock prices sank, investors headed for the relative safety of government debt, driving up bond prices and suppressing interest rates. The benchmark 10-year note was up 17/32 to yield 3.49 percent after briefly touching a low of 3.46 percent.
The price of oil fell below $65 a barrel, a two-week low, as the sagging consumer outlook undermined future energy demand. The drop came in spite of the looming threat of hurricanes and tropical storms that could curtail supply.
“Oil prices were exaggerated because growth demand was exaggerated,” said Fadel Gheit, the managing director of oil and gas at Oppenheimer Funds. “Prices are still inflated.”
At its peak level of GDP, the U.S. economy depended on the American consumer for more than 70% of its output of goods and services. It has been the deleveraging of the American consumer, and to a growing extent, his/her unemployment, that has been the catalyst of the U.S. recession. And not only America; the centrality of the U.S. consumer to the overall global economy has meant his pulling back on a debt induced shopping spree, which has sparked a worldwide synchronized recession.
The vast amount of money that Uncle Sam has borrowed to fund a nearly $800 billion economic stimulus program is supposed to substitute for the falloff in consumer demand, stop the avalanche of job losses and in the process regenerate consumer spending. The perception that this policy response was beginning to bear fruit has been the foundation of a recent flurry of statements emanating from the Federal Reserve, intimating that the recession was winding down, with recovery just around the corner.
When the official sales figures were released by the Commerce Department, jaws dropped right through the floor. Instead of the .7% rise that was expected, July's retail sales figures revealed a decline of .1%. However, the reality was much worse than even the posted decline, for the July figures were artificially inflated by a large increase in automobile related products due to "cash for clunkers." Without the engineered car driven increase in consumer purchases, the actual retail sales contraction was .6%.
The ugly truth is that no matter how manipulated official economic statistics are, including the U3 unemployment number, the reality is that total consumer purchasing power, reflecting the number of hours worked multiplied by average wage, has declined to a level that makes it virtually impossible to recreate vigorous economic growth. Despite the happy talk from Washington, I think it would be surprising if the Obama administration does not ask Congress for a second massive stimulus package before the end of the year.
The dismal science is a derogatory alternative name for economics devised by the Victorian historian Thomas Carlyle in the 19th century. The term is an inversion of the phrase "gay science," meaning "life-enhancing knowledge." This was a familiar expression at the time, and was later adopted as the title of a book by Nietzsche (see The Gay Science).
It is often stated that Carlyle gave economics the nickname "the dismal science" as a response to the late 18th century writings of The Reverend Thomas Robert Malthus, who grimly predicted that starvation would result as projected population growth exceeded the rate of increase in the food supply. Carlyle did indeed use the word 'dismal' in relation to Malthus' theory in his essay Chartism (1839):
The controversies on Malthus and the 'Population Principle', 'Preventative Check' and so forth, with which the public ear has been deafened for a long while, are indeed sufficiently mournful. Dreary, stolid, dismal, without hope for this world or the next, is all that of the preventative check and the denial of the preventative check.
However, the full phrase "the dismal science" first occurs in Carlyle's 1849 tract entitled Occasional Discourse on the Negro Question, in which he was arguing for the reintroduction of slavery as a means to regulate the labor market in the West Indies:
Not a "gay science," I should say, like some we have heard of; no, a dreary, desolate and, indeed, quite abject and distressing one; what we might call, by way of eminence, the dismal science.
Developing a deliberately paradoxical position, Carlyle argued that slavery was actually morally superior to the market forces of supply and demand promoted by economists, since, in his view, the freeing up of the labor market by the liberation of slaves had actually led to a moral and economic decline in the lives of the former slaves themselves.
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