Two conflicting currents seem to be sweeping through both Main Street and Wall Street. The first is nervous-making, the second soothing. They are, respectively, a sense that things are out of control; and a feeling that the economy is in a sustainable recovery. The feeling that things are spinning out of control is an amalgam of seemingly unrelated events. The stock market drops almost 1,000 points in a matter of minutes and no one can figure out why.
A recently naturalized Pakistani plants a car bomb in Times Square and only his incompetence prevents it from taking hundreds of lives. New York City realizes once again just how big and vulnerable a target it is.
Then there is Europe. If a small, almost inconsequential country like Greece can precipitate a broad sell-off in the bond markets and bring interbank lending to a screeching halt, imagine what some financial problem in a large country might do.
And how can we ever dig our way out of the fiscal crisis created by our greed and politicians’ incompetence?
Ralph Waldo Emerson had it right: Things are in saddle and ride mankind. Or did he?
Some of the very people who worry about the effect of uncontrollable forces acknowledge that the economy is indeed improving, in no small part because things are not out of control: The Federal Reserve Board has done a brilliant and innovative job to help the economy recover; President Obama’s stimulus package seems to be having a positive if costly effect, with just the delayed timing that White House economist Larry Summers predicted to me it would; consumers are exerting control over their finances and reducing their credit card debt.
All of this is adding up to what turns out to be a sustained, job-creating recovery. Profits of the companies in Standard & Poor’s 500 Index are up over 50 percent in the first quarter compared with a year ago.
Little wonder that the Business Council and the Conference Board report that their surveys show the index of chief executive officer business confidence is at 66.6, up from 50 a year ago. About 70 percent of all CEOs expect the economy to expand at an annual rate of between 2.1 percent and 3 percent this year, up from 51 percent who held that view last year. And Goldman Sachs is forecasting the economy will grow in the 2.5 percent-to-3 percent range in 2011.
The steel, transportation, construction, banking and auto industries are among those reporting major improvements in activity. And John Paulson (no relation to former Treasury Secretary Hank Paulson), the hedge fund manager who earned billions betting on the housing collapse, expects house prices in California to jump about 20 percent this year, leading a national revival in that sector.
So who has got it right? Both groups exaggerate.
People who think there is nothing to do but wait for the next blow to fall forget that Europe has for the moment forestalled a liquidity crisis, proving that even its slow-moving governing mechanism can take action, even if a bit too slowly. The anti-terror agencies are doing a better job of rounding up would-be terrorists before they can strike, and it is likely that “circuit breakers” will be installed on all exchanges to head off future precipitous 1,000-point drops in the price of any share.
The economic optimists also have gone a bit overboard. We have yet to see how the economy will perform once the Fed implements its exit strategy and the effect of the stimulus wears off, and the dicey commercial property loans still on the banks’ books are written down or off.
As always, things are too complicated to warrant either taking to the bomb shelters or uncorking the Champagne.
Examiner Columnist Irwin M. Stelzer is a senior fellow and director of the Hudson Institute’s Center for Economic Studies.
