So says Howard Davidowitz, chairman of Davidowitz and Associates, which specializes in providing consulting and investment banking services to the retail industry. If you are afraid you've been too pessimistic about the current state of the economy, he will assure you that you are not pessimistic enough. He always makes for a lively discussion while at the same time providing interesting relevant facts.
In this interview from July 1 on TechTicker (which I always find thought provoking and often entertaining), Davidowitz points out that the housing and jobs markets are still in shambles and President's current spending commitments and future health care spending points to a long struggle.
Prosperity is the result of accumulated capital wisely invested in a free market division of labor. Government subsidization of mortgages, socialization of automobile and health care industries, draconian regulation of financial markets, increased government spending, massive government borrowing, artificially low interest rates, and increases in taxes are not the way to get us back on track. All of these policies hamper the market process by directing scarce factors of production away from their comparative advantage, resulting in capital consumption. A shrinking capital stock results in less productivity, lower real incomes, and will keep prosperity further around the corner.
The solution is to do almost the exact opposite, no matter how painful. Government spending should be slashed along with taxes and regulation of the economy. The Fed should cease inflating. Better yet, we should end the Fed altogether.
This is all so painfully obvious now that it is almost unimpressive to hear an economist or someone from the financial industry makes these sorts of comments on a financial show. He still makes the case a little bit clearer than most non-Austrian economists though. I just wonder what he was saying when there was a real possibility of being laughed at and ostracized for admitting how bad the economy was. He can't bring himself to admit that our trajectory is taking us straight to a Depression like in the 1930's so he stopped at Japan, except Japan never had the debt that we have (even the U.S. in the 1930's didn't have the debt we have). The assumption that boom/bust cycle is a natural feature of the market is a big tip off that he doesn't fully understand the causes of this crisis but his detailing of how disastrous the government and its involvement in the economy has been is welcome over a Krugmanite analysis any day.
ReplyDeleteI agree about the extent to which we should hang our hat on Davidowitz's take on things. He does seem to think that cycles are just a part of the economy and in another interview he implied that spending is what makes an economy go. This is a piece of Keynesianism that is hard to shake for most people. Even with his analytical faults, I like him for his bluntness and his anti-interventionist stance.
ReplyDeleteI think he is more correct about Japan than you think. Paul L. Kasriel of Northern Trust wrote a report, "Debt Issues," (http://www.ntrs.com/pws/jsp/display2.jsp?XML=pages/nt/0601/1138283681241_6.xml&TYPE=interior) where he says that Japan is in worse shape than us debt-wise right now. Their debt-to-GDP ration is quite a bit higher than ours because they have been borrowing heavily during the past ten years.
Here's a direct link to the report:
ReplyDeletehttp://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/1001/document/ec012510.pdf
Matthew,
ReplyDeleteHere is part of an interview Davidowitz did on NPR in December of 2005. It's not clear that he understands the big picture completely, but he does seem to have good instincts. Leading into this question, Davidowitz had said that the Christmas retail season in 2005 was a mixed bag:
CHIDEYA: So what were some of the factors in this whole situation? You've got the weather, the transit strike in New York City, people feeling unsecure about the economy.
Mr. DAVIDOWITZ: I think the biggest factor is, you know--if you take the last quarter, household income--household spending exceeded income at the rate of 572 billion. That's bigger than the federal budget deficit. Households since the late '90s have been spending more than they make. There's no way to sustain it. And when you add to that increased interest rates, inflation-adjusted income down in the first time in 20 years, zero savings, the consumer really, just like the country, is in terrible shape. We're in a sea of debt. We're a house of cards. And I think the consumers are starting to worry about it and, of course, now you've got increased energy prices topping that off.
He get's a lot of the proximate causes correct. He just didn't finger the institution that made taking on all of that debt possible.