According to Amity Shlaes, Phil Gramm is correct — there is no recession so just stop whining:

"Consider what happened this week. While speaking with the Washington Times, Gramm said that the country was not in a true recession but a "mental recession." He also said, "We have sort of become a nation of whiners" and "You just hear this constant whining, complaining about a loss of competitiveness, America in decline."

Gramm was right about the recession and stood by his recession comments on Thursday. A recession is two consecutive quarters in which the economy shrinks, and last quarter it grew. But no matter. Voters feel they are in a recession, and so they are, at least according to Campaign Econ."

Um, wrong.

First, let’s corrrctly define what a recession is: It is NOT two consecutive quarters of GDP contraction. What a recession actually is, according to the NEBR, the entity in charge of dating such things, is as follows: 

"A recession is a significant decline in economic activity spread across
the economy, lasting more than a few months, normally visible in real
GDP, real income, employment, industrial production, and
wholesale-retail sales.

A recession begins just after the economy
reaches a peak of activity and ends as the economy reaches its trough.
Between trough and peak, the economy is in an expansion. Expansion is
the normal state of the economy; most recessions are brief and they
have been rare in recent decades. As formally defined by the NBER, it is the "Peak to Trough decrease in business activity." 
-The NBER’s Recession Dating Procedure 

You will note that nowhere in that formal definition is there any discussion of consecutive quarters of negative GDP.

Let’s review: Phil Gramm is working hard at submarining John McCain’s Presidential campaign. Gramm says something that will very likely found to be incorrect — we won’t find out for quite sometime when the recession technically began, but its a good bet that its somewhere in the October 07 – February 08 period, based upon the definition above.

At the very least, what Gramm said was foolishly impolitic. Defending it via bad info is not only wrong, it is insulting to all those "whiners" dealing with food and energy inflation and asset deflation. Ms. Shlaes response is to defend Gramm via definition discarded long ago. (Well, its not like she’s an expert in economics or anything).

I guess she and Phil Gramm are two more Pervasive Pollyannas of Prosperity . . .

Smart move by Phil Gram:

While people are looking at this dumb comment — as well as his great work at UBS — the real fun won’t begin until they start investigating his work on the 2000 Commodities Futures Modernization Act . . .


Recessions Often Begin With Positive GDP Data   (May 2008)


Phil Gramm Is Right
Amity Shlaes
Washington Post, Saturday, July 12, 2008; A13

The NBER’s Recession Dating Procedure
October 21, 2003

Business Cycle Expansions and Contractions 
National Bureau of Economic Research

Bureau of Economic Analysis

Forgotten Man: A New History of the Great Depression (Hardcover)
by Amity Shlaes

Category: Economy, Financial Press, Politics

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

65 Responses to “Amity Shlaes Does Not Know What a Recession Is”

  1. WOW Barry… it’s like TAKEDOWN WEEKEND for you here! I wonder who will be next…

  2. m3 says:

    “the real fun won’t begin until they start investigating his work on the 2000 Commodities Futures Modernization Act . . .”

    let’s not forget the GLBA act he sponsored which repealed Glass-Stegall and caused this financial mess we’re supposedly not in.

  3. Chris Naaden says:

    I’m quite surprised Amity Shlaes would write something like this. I enjoyed The Greedy Hand and The Forgotten Man immensely, and I would think she would lend some perspective to the current financial debacle. Unfortunately, her piece is extremely thin or details and heavy on floating, airy politicking.

    Barry, this blog is heavy on information, which, as the case is (not “may be”), is quite pessimistic on short, mid, and long-term economic growth. This information often rings much truer than the contrived 5.5% unemployment rate. Who knows? She says Phil Gramm is right. Maybe she holds a ton of UltraShorts.

  4. cavjam says:

    A recession is NOT two consecutive quarters of GDP contraction.

    Not to mention GDP is horribly inaccurate as a measure of economic growth, especially when government spending grows due to deficit financing.

  5. Paul Jones says:

    Amity Shales: The numbers say we are not in a recession. We are not in a recession.

    BR: Your definition of recession is wrong. We are in a recession.

    Me: The numbers are phony. We are in a recession.

  6. me says:

    We are now booming. With imports down and exports up they are revising growth higher. Of course when they use too low of an inflation rate in the calculation, we will never show negative growth.

  7. Paul Stiles says:

    Why isn’t the fact that Gramm spearheaded effort to deregulate Wall Street front page headlines? I mean, this is a guy that took legislation written by the financial engineers and got it passed without scrutiny. This mess and the root cause of it can be traced back to Senator Gramm and his efforts!

    Do journalist not understand what the problem is, or do they think the American public is too dumb to understand?

  8. insaneclownposse says:

    What’s funny is that Shlaes maintains that some “vast media conspiracy” campaign to talk down the economy is making people feel overly pessimistic. As far as I can tell, the truth is that things are FAR worse than they appear through the lens of the MSM.

    LEH is on its way out and soon. That much is painfully obvious. We don’t lose TWO of the largest investment banks in the world over the past six months unless the system is hopelessly broken.

    If folks suddenly became aware of how bad things really are, then we would have some real problems on our hands. I think it’s nutty how complacent everyone has become in the face of complete and utter disaster.

    If the “smart money” has been destroyed, then what’s to become of the rest of us?

  9. dblwyo says:

    BtW – that Ph.D. in econ which Dr. Gramm purports to have check out this review by a serious economist at EconBrowser:
    Turns out he wrote a bad literature review not a serious work of mediocre scholarship.

  10. Cardogan says:

    One of Shlaes obsession is debunking the New Deal as a socialist scheme designed to make the elderly dependent on government hand-outs. For Shlaes, FDR is one of the great villains of the 20th century. You can read about it in her book, the name of which, I can’t be bothered to google.

  11. VJ says:

    I heard Amity Shlaes on the radio show Left, Right, & Center. She’s like one of those wind-up dolls. You pull her string and she spews a litany of RightWing claptrap.

    Here’s the then Senator Gramm (R-TX) from 1993 when President Clinton’s tax and budget legislation was making it’s way through the Congress:

    “I want to predict here tonight, that if we adopt this bill the American economy is going to get weaker and not stronger, the deficit four years from today will be higher than it is today and not lower … When all is said and done, people will pay more taxes, the economy will create fewer jobs, the government will spend more money, and the American people will be worse off.”

    At least a stopped clock is accurate twice a day.

  12. Mike in NoLA says:

    Gramm and his family are some of the classic frauds of the last 40 years. While feeding at the public trough in Congress for over 30 years, he railed about big government. Then he became a lobbyist for big business under the guise of joining a think tank.

    His wife is part of some right wing think tank, raking in bucks from big business. She was also on the see-no-evil Enron board of directors..

    I’m sure they don’t see anything to whine about.

    I really don’t like Obama; he’s a machine politician who got the nomination by pretending to be something new and latching onto a few catch phrases. If he gets off script, it’s clear doesn’t know issues. He’s bought and paid for by the big special interests, including Wall Street, and they will continue to run the country under him. For example, a recent LA Times article said:

    “Records show that four out of Obama’s top five contributors are employees of financial industry giants – Goldman Sachs ($571,330), UBS AG ($364,806), JPMorgan Chase ($362,207) and Citigroup ($358,054).”

    But, McCain continues to surround himself with people like Gramm and Carly Fiorina, whose success in running HP certainly qualifies her for a high post. He also continues to make statements that show he’s politically and factuallly clueless, like embracing the policies of a President with an approval rating in the 20′s: tax cuts for the rich during an economic downturn, not knowing the difference between Iran and Al Queda, etc.

    We are doomed.

  13. Mint says:

    Gramm was was also instrumental in the repealing of Glass-Steagall Act of 1933 which many economists blame for todays problems

    Gramm-Leach-Bliley Act

    The bills comprising the act were introduced in the Senate by Phil Gramm (R-TX) and in the House of Representatives by James Leach (R-IA). The bills were passed along party lines with Republican support in the Senate[1] and with bipartisan support in the House of Representatives[2]. It was signed into law by President Bill Clinton.

    Repeal of the Act
    On November 12, 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933. One of the effects of the repeal was to allow commercial and investment banks to consolidate. Several economists and analysts have criticized the repeal of the Glass-Steagall Act as contributing to the 2007 subprime mortgage financial crisis.[6][7]

    Losses at financial firms from the mortgage collapse may eventually triple to $600 billion as defaults on home loans grow, says Zurich-based UBS AG. One reason banks are losing money is the repeal nine years ago of the 1933 Glass-Steagall Act, which separated commercial and investment banking after excessive risk- taking contributed to the Great Depression, Eveillard said.

    The repeal enabled commercial lenders such as Citigroup, the largest U.S. bank by assets, to underwrite and trade instruments such as mortgage-backed securities and collateralized debt obligations and establish so-called structured investment vehicles, or SIVs, that bought those securities.

    Citigroup, which has fallen 36 percent since reporting in January the biggest quarterly loss in its 196-year history, may have writedowns of $15 billion this quarter, according to New York-based Merrill Lynch & Co. That would add to the $22 billion that Citigroup already lost because of the housing slump.

    Citigroup played a major part in the repeal. Then called Citicorp, the company merged with Travelers Insurance company the year before utilizing loopholes in Glass-Steagall the allowed for temporary exemptions. With lobbying led by Roger Levy, the “finance, insurance and real estate industries together are regularly the largest campaign contributors and biggest spenders on lobbying of all business sectors [in 1999]. They laid out more than $200 million for lobbying in 1998, according to the Center for Responsive Politics…” These industries succeeded in their two decades long effort to repeal the act. Also, “The newly formed Citigroup announced only days after the deal that it had hired recently departed Treasurey Secretary Robert Rubin as a member of its three-person office of the chairman”.[8]

    “Glass-Steagall protected bankers against themselves,” Eveillard said. “Bankers are sheep. They don’t mind going over the cliff if everyone else goes over the cliff.”

  14. Bthunder says:

    For me a recession is primarily when I work and produce more, but can afford less with what I get paid. Secondarily, a recession for me is when the value of my assets keeps going down in price for a prolonged period of time.

    A severe recession for me is when there’s little or nothing that can be done to correct the two conditions listed above. Indeed, finding a higher paying job is harder than 2 years ago, getting a good price for your house is near impossible. And without much flexibility of choices, my 401(K) is 100% in money markets, @2.19%, while every stock fund in the plan is down YTD, and down double-digits since the peak. Not to mention the dreaded “I”-word – the Inflation. That too contributes to my “recessionary” state.

    Don’t know for the rest of you, but for me personally this is a severe recession.

  15. Winston Munn says:

    “it is insulting to all those whiners dealing with food and energy inflation and asset deflation.”

    Barry, can we truly have any sort of inflation and at the same time have “asset deflation”? To me, this is impossible. I know the destruction of debt is real, and with it has gone the so-called fictional capital it created – so without a money-debt-engine to drive it, how can there be any inflation?

    However, if commodities and food were being horded, turned to as representing real wealth instead of paper monies, the idea of rising food and energy costs and deflating assets makes sense.

    The Austrian school calls it the crack-up boom.

  16. constantnormal says:

    re: ‘can we truly have any sort of inflation and at the same time have “asset deflation”?’

    Maybe not at the same time, but we can certainly be whipsawed by back-to-back steep periods of deflation and inflation.

    The worst of both worlds, as it were.

  17. Bob A says:

    “Phil Gramm is working hard at submarining John McCain’s Presidential campaign”

    Keep up the good work

  18. Al Czervic says:

    Just happened to catch a History Channel program this afternoon on the fall of the Roman Empire and the subsequent onset of the Dark Ages. Now THAT was a recession. Only took a few centuries to get past that one.

    Of course Gramm and Shlaes would probably opine that those Western Europeans were just whiners and it was really only a mental Dark Ages.

    I guess the only bright spot was that the Eastern Empire “de-coupled”.

  19. John says:

    Shlaes is a neoconservative shill. Her book about the depression lays it all at FDR’s door and with the benefit of seventy years of hindsight she tells you how she would have avoided the same pitfalls. These people are pathetic really and belong in the same category as holocaust deniers or believers in Atlantis.

    Her defense of Gramm is not only wrong in fact as BR points out but she even starts moving the goalposts as he did to “clarify” that he didn’t mean we were all whiners etc etc. Unfortunately there’s a YOUTUBE out there of him actually saying it. This guy is a multimillionaire deputy chairman of UBS and he’s lecturing the American people on whining. UBS meanwhile has so far written down about $19 million and is under investigation by the IRS for massive tax evasion strategies.

    You can’t make this stuff up.

  20. “I’m quite surprised Amity Shlaes would write something like this. I enjoyed The Greedy Hand and The Forgotten Man immensely, and I would think she would lend some perspective to the current financial debacle. Unfortunately, her piece is extremely thin or details and heavy on floating, airy politicking.”
    Posted by: Chris Naaden | Jul 12, 2008 6:26:42 PM


    see if this:

    additional biographical background lessens your surprise.

    this book: provides a workable outline of what Schlaes’ cohorts are all about..

  21. AGG says:

    Shakespeare poke of people like Gramm centuries ago:

    So that in venturing ill we leave to be
    The things we are for that which we expect
    And this ambitious foul infirmity
    In having much, torments us with defect
    Of that we have, so that we do neglect
    The things we have, and, for want of wit
    make something nothing by augmenting it

    What win I if I gain the thing I seek
    A dream a breath a froth of fleeting joy
    Who buys a minutes mirth to wail a week?
    Or sells eternity to get a toy?
    For one sweet grape who will the vine destroy?
    Or what fond beggar, but to touch the crown
    Would with the sceptre straight be strucken down

    Times glory is to calm contending kings
    To unmask falsehood and bring truth to light
    To stamp the seal of time in aged things
    To wake the morn and sentinel the night
    To wrong the wronger till he render right
    To ruinate proud buildings with thy hours
    And smear with dust their glitt’ring golden towers

    Rape of Lucrecia

  22. John says:

    So where are the people that will defend Gramm.

    I expect that over 80% of the US populace (aka whinners)knows that the economy is a mess and they are suffering . About 10% don’t have a clue what is going on. That leaves maybe 10% that would support bush/mccain as the ship slowly sinks into the depths. After all that 10% includes the few percent that have gotten rich over the last eight years and the few percent that are eagerly waiting on Armageddon. I wish I was kidding but a lot of these people have been in charge and we are just starting to see the results of their handy work.

  23. algernon says:

    Barry, I have come to expect better of you. What Graham & Shlaes have said is defensible in the sense that the unemployment rate is better than its average for the last 30 years & objective measures of economic health are well above the recessions of the 70′s, etc. I agree with you that hard times are in the offing, but we aren’t there yet. You have better things to do than nitpick these 2.


    BR: You apparently have not read what I’ve written about NFP, Unemployment, or Inflation over the past 5 years.

    If you believe the U3 rate (5.5%) is accurate, then of course we are fine. If on the other hand, you believe the U6 measure (9.9%) is closer to reality, then not so much . . .

  24. Marcus Aurelius says:


    I don’t think your premise regarding numbers then vs. numbers now holds water. They’re apples and oranges.

    I think TBP has been over this topic before. If I’m not mistaken, it was pretty much accepted (and logical) that the picture is bleaker if you use the same set of metrics for all time periods (if possible), and that the numbers that are currently released, regardless of measurement criteria, are fudged.

    Thickly fudged.

  25. Michaela Stephens says:

    “Expansion is the normal state of the economy” – I don’t think so. In order for expansion you must be selling more and meeting people’s needs. But once people’s needs are met, they don’t need any more, so there is (or should be)a subsequent dearth of demand.
    American consumers have overdosed on debt, so they won’t be spending for a good long time.
    They have bought overpriced homes that are now falling in price, so they are losing and walking away from their homes and the ability to buy again in the near future.

    “If the “smart money” has been destroyed, then what’s to become of the rest of us?”

    The smart money was actually really dumb. They lost sight of fundamentals and started thinking debt was as good as cash in a market full of fraud.

    Pay off your debt as fast as you can, don’t go into new debt, have some emergency cash and some food storage and you should be fine.

    Don’t knock storing food. How many banks have to go down before the FDIC is out of funds? In a time of worry, it is nice to know you can still feed the fam.

  26. Jay says:

    The Chinese are going to eat our lunch while we bitch at each other for the next 20 years, and our corrupt politicians rob us blind.

  27. Francois Theberge says:

    A question that no one has been able to answer to my satisfaction is this:

    Why such newspapers like WAPO and NYT persist on adding (and keeping) neocons shills to their staff when this ideology is being thoroughly discredited by the fearsome of rascals called FACTS?

  28. woodpigeon says:

    The ‘two quarters of negative growth’ definition is entirely arbitrary.

    It was during his time as the BBC’s economics editor that Peter Jay ( took the credit for thinking it up. He claimed that when he was UK ambassador in Washington (c.1980) it was agreed upon as a politically useful working definition, but no more than that.

    As is the way with these things, journalists have subsequently given it de facto definition status, whereas Barry’s commentary gives the official definition, for the US at least.

  29. Shlaes obsession is making Deal as a social scheme designed to make elderly dependent on government. It`s really great step in economy

  30. VennData says:

    Now that Bush/Paulson are bailing out FNM to the tune of $15B of taxpayer money, to which political party will Amity Shales turn?

    If Phil Gramm called this unseemly act of government intervention “socializing” would Amity agree? Did Phil Gramm call Bush’s socializing of the TSA “socializing?” Did Amity genuflect to that one?

    I think Amity’s daddy told her FDR was bad when she was just a little shill, now that she’s all growed up she can think for herself. So will she stick with ‘government is bad?’ …or stick with the GOP? Either or, can’t be both.

    Here’s betting GOP.

  31. this book:

    by Butler Shaffer provides more realistic POV of the Post-War (WWI) era than Schlaes’ co-opted paen.

    this, encapsulates: “What he finds is a business sector not only hostile to free markets but aggressively in favor of restrictions that would protect their interests. This, he finds, is the very source of the origins and development of the regulatory state.

    The author chooses this period because it was a time when the entire relationship between American business and the federal government underwent dramatic upheaval. It was in this time that business forged a consensus about the scope and intensity of competition behavior that they would tolerate. This began to exhibit a disposition favoring collectivist authority over one another via government-backed enforcement agencies.

    Free and unrestrained competition required more of them than they were willing to tolerate. It required constant innovation, a fight against falling prices, a continued effort to seek out new markets, and the willingness to subject their bottom line to consumer preferences for lower prices and better products. They saw the vibrancy of free enterprise as a threat to their firms and well being, so they used anti-business sentiment in politics to hamper the market in ways that would benefit them.”

    this short summary:
    of the term, ‘Restraint of Trade’,should, readily, make one wonder whether the Sherman Antitrust Act of 1890 is dead letter law..

  32. whosonfirst says:

    One of the themes of this comment thread is taking Shlaes, whoever she may be, to task for criticizing Roosevelt and the New Deal. As though this is absurd on the face of it. One commenter equates it with denial of the Holocaust.

    Well folks, get off your dead asses and read about Roosevelt and the New Deal. The fact is, the only thing that ended the Depression was WWII. In the end, Roosevelt was simply the father of Big Government.

    Harry Truman once said, “The only thing new under the sun is the history you don’t know”.

  33. MG says:

    How about the history you don’t understand. The debate on big government is over. Once side believes government should play a role in socializing risk. The other believes it should socialize risk, but only for the rich. The small government crowd, the libertarians and the “Austrians” are politically marginalized.

  34. John says:

    I’m the commentator who compared it with Holocaust denial. Because that’s exactly what it is. Rather like those armchair generals who tell us how Lee mishandled Gettsyburg, or Montgomery let the Germans escape at El Alamein. All totally oblivious of the circumstances and available knowledge at the time. I’ve indeed got off my ass and read about FDR and the depression. He wasn’t perfect, he made lots of mistakes, he threw money at problems, some of it was counterproductive. All of this totally ignores the dimension of the problem. When he took office every bank, and there were thousands of them, in the country was insolvent and/or closed. The whole credit mechanism to pay for farmer’s seed or carmakers steel had ceased to function. There was no fully funtioning Fed or SEC or the myriad of other economic agencies to deal with the problem. FDR got the system moving again. His monuments are all around us. I post my letters in a depression built post office. My kids went to school in buildings built during the depression. Most of the depression era highways are still major arteries. He essentially, with no map to guide him, created for better or worse the whole modern system of govt. You may consider it for worse and prefer a return to the Coolidge model of govt (I wonder how they’d be handling the current crisis) but I don’t think you’d find many takers. And no the US economy didn’t fully recover until the war started but in the meantime GNP recovered substantially even if it didn’t regain the bubble level of 1928, new industries came into being, and we avoided drifting into fascism. Ironically the president you quote, Truman, probably did as much as FDR to expand govt because he essentially created the whole modern national security system which with tweaks here and there has been operated by every president since. Perhaps you should get off your ass and read a few books about Harry Truman!

  35. D. says:

    Barry, can we truly have any sort of inflation and at the same time have “asset deflation”? To me, this is impossible. I know the destruction of debt is real, and with it has gone the so-called fictional capital it created – so without a money-debt-engine to drive it, how can there be any inflation?


    1. If rates go up and/or liquidity disappears, I am ready to bet that many players will be forced out of the system. Less competitors means less capacity. If capacity shrinks in a fast way you could easily end up with higher prices.

    2. This cycle started with a glut of oil and many other commodities. It has been planned according to 20$ oil. For the last decade at least, when companies were deciding whether they should take on a project or not, it was based on 15% ROI. Since our entire economy depends on energy thus oil, this 15% implicitly assumed 20$ oil adjusted for inflation (2-3%) for the length of the project. Oil is now 140+$. Even if it drops and stabilizes at a new cost of production of 50$, new business models will need to do adjustments for this new reality. There is always a lag before a company admits that higher costs are here to stay; we’re just beginning to see companies price for this new reality.

    3. A generation ago, USA was spending 5% of GDP on infrastrucutre, today it’s around 2%. Because of 30 years of total disregard for our infrastructure and a focus on hedonism and consumerism, our North Amercian infrastructure is in total disrepair. If the economy needs to be stimulated, it will be done through social infrastructure projects. Commodity prices will be supported by such activity and this cost will flow through the entire economy.

    3. To understand the cost structure of the last decade, one needs to look at the income statements and balance sheets of firms. On the cost side, interest expense was falling because of falling rates, DD&A was falling because of lower investments, wages were dropping due to offshoring. Every freaking line in the expense line was dropping. Capital was extremely easy to get so companies were doing secondaries or taking on cheap debt while mispricing their product: telecom services, airline tickets…

    If airlines and many other sectors cannot get easy money anymore, they WILL have to increase the price of their products to survive even if consumers can’t affrod it. There will be bankrupcies thus a reduction in capacity = higher prices.

    Since expenses are on their way up, pricing will go up. If America gears itself towards exporting again, it will have to build itself up for this and that will increase DD&A. Higher interest rates will increase interest expense. Higher oil/commodity prices will change the shipping and warehousing dynamics (Goodbye just in time inventory?).

    4. When the economy slows, government takes over to stimulate the economy. Government intervention is ALWAYS inflationary. It will take over the Fed printing money by creating jobs and offering all kinds of payments: SS, welfare…

    5. The demographics are changing. Boomers are on the verge of retiring. Older people spend less on clothes, food… Even the well to do spend less on dsicretionary items as they age. Due to our obsession with youth, our economy is probably badly adapted to an ageing population. Due to at least a decade’s worth of misallocation of capital, there has probably been a lack of investment in sectors that will serve a big chunk of the ageing population over the next decade. As demand increases for these underserved sectors, prices will get pushed up until these sectors are well capitalized.

  36. Don Coxe thinks so:

    Goodbye, Global Savings Glut: Hello, Food & Fuel Inflation

    We have been bearish about the US stock market since American banking and financial stocks broke down last summer. A major financial crisis hit Wall Street, and the fallout spread across much of the rest of the world like volcanic ash.

    Yet Wall Street remained bullish, climbing briefly to a new high.
    Then oil ran past $100 a barrel and kept on climbing.

    Then a global food crisis was proclaimed, and talk of stagflation was heard, and stocks sulked. But, with the arrival of Spring, Wall Street’s animal spirits came out of hibernation: in early May the Dow was back to 13,000 amid renewed optimism that the banking crisis was over, and Washington’s handouts revived consumer spending.

    Since then, the hoary strategy of “Sell in May and go away” has been the new wisdom.

    As the three shocks to the global economy—food, fuels and folly (of bankers)—work their way into economic projections, the likelihood of the biggest challenge of all—a recession—keeps increasing, with the US and Europe looking most vulnerable, and Emerging Markets shares plunging.

    For the First Half, investors following our “Bad News” recommended strategies have had excellent relative returns: the CRB Index was up 30.4% (its largest leap for that period on record) and the S&P and the MSCI world equity index were down 12%.

    We believe that the onset of a global food crisis at a time of record oil prices is a direct challenge to the prevalent views of economic growth and inflation.

    We also grow more concerned by the week about the potential for even higher prices for foods and fuels because of global chills arising from the worrisome failure of sunspots to return after their normal year of sharply reduced activity.

    We are raising our Cash commitment slightly, reducing bond durations, and fine-tuning our Recommended Commodity Stock Weightings to reflect the shifting risks and rewards in the raw materials sector.

  37. Marcus Aurelius says:


    As usual, your comment is clear, concise, and to the point.

    Phil Gramm says you’re whining.

  38. paul says:

    I believe a definition of Recession is in order. It is not a formula, unless one is insensitive “feel.” This recession began that feeling to me last August. For those who need a formula – they should not be in the public eye – at any level.
    My feelings were not created by “looking back” they were created last August. Did it start then? I can only speak for myself – since economic conditions are “subjective.” On a National Level – Deep Spending by the Government – if not creating a super economy – then becomes over fueling an inefficient engine – which would be in decline.

    Phil Gramm is living proof of National Decay. His statements are not all wrong.
    We are a fat people, who satisfy our anxiety by purchasing tangible goods with out the responsibility of payment (credit) feeding an addiction to marketing brainwashing.

    The Government needs formulas – and only as a minimum, to affect – current costs – in programs. Cost of Living numbers are lies – yet they become the % adjustments to these programs.

    The best way to fix this problem is a very deep recession – that requires a definition of how we as a country can live – with real life economics – pay as you go – for example – living in the financial present.

  39. Chris Naaden says:

    To Mark above: thanks. Did you think I think I didn’t Amity Shlaes was a conservative, after having mentioned I’d read two books by her? And thanks for providing a link for something equally as objective as Naomi Klein, just to prove your point.

    But then again, this is history we’re quarreling about, or hasn’t Oceania always been at war with Eastasia or Eurasia at some point?

  40. D. says:

    And thanks for providing a link for something equally as objective as Naomi Klein, just to prove your point.

    Good and bad points can be found with both liberals and conservatives. And she does bring up many good arguments.

    Nothing is objective when you’re dealing with economics, that’s why we have these blogs that debate the state of the economy. That’s also why the economics theories keep on changing with each passing cycle.

    Economists keep on trying to pin point *THE* key variable (which has been interest rates for the last 2 decades by the way).

    Those with a little more brain power realize there’s more to it than one variable so they move on to econometrics and regression analysis.

    Then they realize that the world is not linear but the math is too complicated for most to understand so they always fall back to the *THE* key variable.

    So folks, what’s *THE* next key variable?

  41. VoiceFromThewilderness says:

    If we don’t have a recession, and if business is doing so great, then I’m quite sure there is absolutely no need for all the bailout legislation being written by major banks.

    McCain’s campaign has become absolutely hillarious for the innane, contradictory, superficial, and meaningless proclamations that issue from it on a now weekly basis.

    It’s okay though, because Obama’s campaign has become the clear and leading voice of corporate interests, so we are all safe.

  42. Chris,

    this: “and I would think she would lend some perspective to the current financial debacle…” in your post, was what I was responding to.

    I wasn’t, really, trying impute, to you, anything at all.

    And, the referenced book, by Naomi Klein, was posited, as I said, merely for the Outline.

    Past all that, I don’t really care if you think Schlaes is ‘conservative’ and Klein ‘liberal’, though, I’d suggest you lose that particular set of blinders, just that you Think.

  43. Todd says:

    Glad to see the BR takedown of Phil Gramm, who is a prime candidate for Secretary of the Treasury in a McCain presidency.

    John McCain insults my intelligence by claiming to be a maverick while being vastly influenced by lobbyists like Gramm and many others who are part of his core campaign team.

    Phil Gramm is responsible for crafting a lot of legistlation that got us into this mess. John McCain is oblivious to that.

    Keith Olbermann exposes Gramm’s lobbying conflict of interest while being principal economic advisor to McCain, as well as his legislative accomplishments that have brought this country to it’s knees. Starting around 4:00 on this video, Olbermann focuses on Gramm:

  44. Chris Naaden says:

    Mark, understood, and I appreciate that. I’ll call off the dogs, too.

    I was upset that Shlaes wasn’t more descriptive. If the famed Hoovervilles and shantytowns of the Depression don’t exist today, she should have said that. She makes the point that people were defaulting with 90 percent equity, which strikes me as anecdotal.

    I see her point, though. I long for someone proclaiming something positive about the marketplace.

    If going defensive or commodities or short or buying puts makes money, that’s a positive thing, and I wish Phil Gramm would have led in that direction; something concrete instead of whining. Access to commodities or going short or ETFs weren’t readily available to the average small investor (I think) back in the Depression, and since it is now, we should proclaim this access as something awesome, that can save my little cash hoard.

  45. Freefall says:

    Gramm was a fool when he was in the Senate. How did McCain hire this buffoon?

  46. Stormrunner says:

    I’ve been posting about “fractional reserve lending”, “debt-Based Fiat” and the joke that is the FED for nearing two years, trying to digest retorts the likes of which the system is fine and has serverd us well over the years.

    Austrians have warned that the initial inflation is politically palatable in the early and mid stages. I believe this is the “served well” period which is now over.

    Winston’s comment on inflation certainly contains what on it’s face appears to be paradoxical.

    If one considers the rotation of the “bubbles”, I believe the paradox disappears.

    FED highjacks FFR after implosion that was the Tech Bust that decimated the previous decades retirement accounts. >> Artificially low rates catalyze Housing Boom

    FED attempts mean rate reversion Housing Boom goes Bust. FED once again hijacks FFR
    Commodity Boom ensues. Only the economy needs to expand for the cheap credit to perform in this environment and the funny money needs someplace to find yield or the Banks can not rebuild balance sheets. Enter consumables the last bastion of yield that is not discretionary. You can choose not to expand your business, your residence, your precious metal holdings, without diminishing your living standard appreciably. But you cannot likewise do the same for food and fuel not to mention the overall increase in the number of market participants which can be fleeced.

    This is it folks the “end game”. This is the last sector to be successfully “inflated”. What happens next? Consensus points to some version of “Hyper-Inflation”. I believe this is perception created by those chasing yield in consumables driving prices for said consumables higher. This by strict definition is not inflation nor is it sustainable as we have experience with the Housing Debacle all things revert to the “mean” and men reversion is a “beatch”. It all goes to affordability.

    Every asset class, save consumables, is in deflation, there is no expansion of money and credit. The expectation is competitive devaluation is losing international appeal. To debase further would dismantle the power that is the US. All things being equal deflation best supports the “elite” as now that the fleecing is finished its getting near (16-24 months) time to go shopping.

    CUDOS to the poster on the GRAMM dismantling of protections in place since the last Great Depression. Hopefully this becomes common knowledge or he becomes marginalized to prevent just such an outing in the MSM. McCains “economic-warfare” expert, one down. Next to be outed Obama’s Robert Rubin. Two sides of the same coin colluding to fleece the public while attempting divert attention away from their “history”.

    Isn’t Gramm the #2 guy at UBS, the Bank being investigated for enabling “elite clientele” to evade US Tax laws. Lets here more about what whiners we are—priceless

  47. Todd says:

    Here’s another takedown candidate for you, BR, re Phil Gramm: the leading editorial in IBD this weekend is entitled “Straight Talk At Last From Gramm”.

    ”We’ve never been more dominant. We’ve never had more natural advantages than we have today” according to Gramm. IBD says Gramm is ”perfectly right about America’s economic dominance.”

    No mention in the article whatsoever about Gramm’s conflict of interest of lobbying for UBS about mortgage legislation while simultaneously advising McCain on economic policy. Of course,IBD gives no mention of the legislation that Gramm crafted in mortgages and in banking/investment banking that paved the way for fraud and terrible loan policy and market instability as a result of Phil Gramm’s economic acumen.

    Investor’s Business Daily should be held accountable for publishing crap like this.
    What exactly is IBD’s agenda?!?!?!?

  48. VJ says:

    And the Marie Antoinette Award goes to the RightWing’s George Will.

    This morning on ABC’s This Week, George Will staunchly defended Gramm’s comments:

    WILL: Phil Gramm was right of course. Absolutely.

    On two points. … We’re not in a recession as commonly defined. That is two consecutive quarters of negative growth.

    STEPHANOPOULOS: We may be running there though. Even Bernanke says so.

    WILL: We’re not however. Unemployment is just about the post-war average at 5.5 percent. His second point that we’re a nation of whiners: we are the crybabies of the western world. In fact, we have an extraordinarily low pain threshold.


    We have record high bankruptcies, record high home foreclosures, the largest inventory of unsold vacant homes in history, the savings rate went negative for the first time since the Great Depression, runaway fuel and food inflation, real wages for the vast majority of Americans going backwards since 2000, millions more jobless workers since 2000, the Unemployment Rate is likely 10%, Poverty increasing every year since 2000, the number of uninsured Americans rising every year since 2000, record high federal deficits and debt, large bank and investment bank failures, and the S&P 500 is off 30% in inflation-adjusted dollars from 2000.

    Do RightWingers have genes from Bizarro World or WHAT ?

  49. ShlaesMe says:

    The American working class has seen no rise in income since 1972. What’s more, 45 million of them have no medical insurance. Public infrastructure is crumbling in this country and social mobility has come to a complete standstill. Americans passively accept the doubling of gas price and unlike Japanese and Europeans, are offered no practical mass transit system.

    And yet, George Will claims that Americans are the biggest whiners in the western world.

  50. Richard says:

    Phil Gramm,if I’m remembering correctly, failed two grades in elementary school. He did go on to earn a doctorate in economics, but still not a brilliant mind representing the field of economics or much else.

    McCain should rethink Gramm as treasury secretary; maybe publicly take his name off of any possible cabinet post. His mouth would send markets reeling every time it spoke.

  51. John says:


    “Isn’t Gramm the #2 guy at UBS, the Bank being investigated for enabling “elite clientele” to evade US Tax laws. Lets here more about what whiners we are—priceless”

    He is indeed a deputy chairman at UBS although that doesn’t make him the number 2 guy. Nevertheless it’s close enough. This is an institution that not only is being investigated by the IRS for tax evasion but also has something of the order of $19billion in write offs (or is it $25billion, but what’s a few billion among friends). His wife is also Helen Chao the transport secretary and also like him a committed neoconservative idealogue. So Mr Gramm is hardly without baggage or interest conflicts in this matter. His own major role in the ending of Glass Steagall which has played some part in this debacle can’t be overlooked either. The mystery to me is how does your average conservative middle class voter in Texas think this guy is any remotest way operating in his interests. Bernanke and Paulson are desperately trying to keep the wheels from falling off the cart before Bush leaves office so the waters can be muddied on when the recession started so that five years down the road the Republicans can spread the blame elsewhere but I’m not sure they are going to make it. I really do think Ben is deeply worried about the state of the banking system, there’s no other explanation for the willingness of the Fed to take all this junk as collateral for lending to the banks.

  52. Lord says:

    The problem I see is the discussion is not even about the appropriate things. We are talking about people here. It is not gdp but gdp per capita that matters to people and that has been negative for a while. It is not jobs created or lost but jobs created or lost over population growth. It is not inflation but real wages that matter and have fallen. It is not about how wealthy we are but how much of it is disappearing in the market and real estate. When one doesn’t focus on the pertinent measures no wonder one ends up clueless.

  53. Scott says:


    It’s hard to take you seriously when you parrot nonsense like “demand destruction.”

    When it comes to econ, leave it to the experts and use this phrase, “I don’t know, let me consult with an expert in that field.”

  54. Anonymouse says:

    The reason why Amity Schlaes doesn’t know what a recession is” is because she was an English major. She has no formal economic training.(From the Yale online directory)

  55. Black Lab Capital says:

    If I were John McCain, I would be telling everyone I know we are in recession. In fact, I’d be painting the worst picture possible.

    That way, if I get elected, and things are even marginally improved one year from now, or, even better, four years from now, I can take credit for it.

  56. VJ says:

    Actually, at one point late in the primary, McCain flat out told a crowd we were in a recession, but that was before he was the nominee. He initially supported Gramm’s ridiculous comments and called him some sort of great modern day economist, until the backlash started. He also voted against the disastrous tax cuts for the Rich & Corporate before he back-tracked and is now for them.

    Of course, Obama back-tracked on NAFTA, FISA, public financing, Iraq, and I’ve already forgotten what else.


  57. pudge says:

    Barry: you are wrong.

    In fact, there IS NO “actual definition” of a recession. The NBER provides only one of many.

    Granted, the NBER’s definition is widely respected and recognized, but it is not the only one, and it is not authoritative. The term “economic recession” predated the NBER, and I don’t recall anyone giving the NBER a monopoly on the use of the term.

    “Consecutive quarters of GDP decline” is a perfectly reasonable definition, though it has fallen out of favor with many people for obvious reasons (GDP, especially for large countries, doesn’t necessarily well-reflect the situation on the ground for most people). But that doesn’t make the definition wrong. And you cannot change or assert a definition by fiat. Language does not work that way, and neither does economics.

    For someone who has such a significant background in the markets, it is sad that you make such a rookie mistake. Since you should know better, it makes me think you are being intentionally deceptive.

  58. Bud Hovell says:

    “Expansion is the normal state of the economy.”

    In an economy which is 70% consumption and thus entirely out of balance with production, this is a sign of deterioration, not health.

    Only if the economic balance of consumption and production is moving toward balance can such expansion offer a sign of health, since increased consumption without a concomitantly balanced increase in production steadily deducts from net national wealth rather than adding to it. Which is to say that declining real capital must be steadily replaced by credit as the erosion continues even as the economy is “growing”.

    Eventually, of course, the important question is who holds ultimate claim to national wealth. If claims on that wealth and its productive capacity are moving out of domestic hands, then the economy gradually becomes an engine for profit which increasingly benefits others than those who are domestically engaged in producing that added wealth.

    The “normal expansion” of a persistently out-of-balance economy based on perpetual inflationary policies by its government eventually produces a sharecropper society for its people, particularly when inflationary expansion of that economy becomes its “normal state”.

  59. rex says:

    Barry: Thanks for taking on the nitwits.

  60. VJ says:


    Barry: you are wrong.

    No he isn’t.

    ‘Consecutive quarters of GDP decline’ is a perfectly reasonable definition … But that doesn’t make the definition wrong.

    No, but it doesn’t make it exclusive either. Both the NBER and Barry have pointed out that “two quarters of negative GDP” are not required to make a recession.

    That’s all.


    Granted, the NBER’s definition is widely respected and recognized, but it is not the only one, and it is not authoritative.

    At some point (?) the NBER actually did become the official arbiter of when recessions began and ended. So far, they have accurately reported when recessions began, and up until recently when they ended. I previously documented that they incorrectly called an end to the recession in the 3rd QTR 2001.

  61. winslow says:

    Gramm is a politco. Gramm is wealthy. These two points indicate we should not listen to anything he says telling us what to believe.

  62. pudge says:

    VJ: ‘No, but it doesn’t make it exclusive either. Both the NBER and Barry have pointed out that “two quarters of negative GDP” are not required to make a recession.’

    VJ, no, that is not what Barry said. Barry said that IS NOT a recession, and that a recession IS something else. What you are saying is not what he said: he did say the NBER’s definition is exclusively correct.

    Barry is wrong.

    “At some point (?) the NBER actually did become the official arbiter of when recessions began and ended.”

    Nope. That never happened. Now, some departments, for some purposes, may officially recognize the NBER’s claims. But that does not make it official for me, for you, for Barry, or for Amity, or for every part of government.

    “So far, they have accurately reported when recessions began …”

    In your opinion, of course. I believe 2Q 2001 was much too late to mark the beginning of that recession. 1Q 2001 makes more sense, considering that is when we first had the significant GDP contraction, even if the lagging indicators didn’t show up until later.

    “… and up until recently when they ended. I previously documented that they incorrectly called an end to the recession in the 3rd QTR 2001.”

    It is not “incorrect.” It is an opinion. There is no correct or incorrect. For it to be “incorrect” there would have to be a set definition, and, of course, there is not.

    And what is your opinion of when it ended?

    winslow: so you do not listen to Obama or Kerry or Gore or … ? Maybe you don’t, but I just hope you’re being consistent.

  63. Blackhalo says:

    In an environment where food and energy costs are carving out a nice chunk of the average American’s discretionary spending, I would be inclined to whine too. Too bad the fed does not measure inflation or GDP in real, inflation adjusted dollars, as that would show just how non-imaginary this recession is.

    This polyannish attitude that Gramm displays is the same line of reasoning that got us into this mess in the first place.

    The fed is faced with the Devil’s bargain, Double Digit inflation or double digit interest rate. Or if we wait long enough, both. Apparently all we need to do is wish this economic turmoil away. Quick, everyone, clap your hands to save Tinkerbernake.

  64. LaVern Isely says:

    The taxpayers that are bailing out the investment bankers would like to know if anybody in Congress knows what the GLASS-STEAGALL ACT is? It was highly lobbyied and then repealed because they didn’t want to separate the Commercial Banks from the Investment Banks. So drag the working people down with the elitists. Then we’ll see who the biggest whiners are. At least the working class knows how to work. The elitists just live off of us like a bunch of lice and once the working class is dead, who will do the work? If they can’t answer that question, they have a problem. Looking forward to hearing an answer.
    Yours truly, Disgusted Middleclass Taxpayer, LaVern Isely

  65. Scott F says:

    Qualifications I Can Believe In

    I hadn’t realized that Amity Shlaes is a “senior fellow in economic history at the Council on Foreign Relations.” I kind of wonder what it takes to get made a senior fellow in economic history at the Council on Foreign Relations. She’s got a bachelor’s degree in English and her columns once won a prize from a libertarian organization for some articles that “compared the failing economy of high-taxed and over-regulated US state of Maine to the success of the increasingly economically liberal Ireland; and showed that US workers benefit from taking responsibility for their own pensions.” That’s it.

    I have a really, really, really hard time imagining the CFR doing something comparable for a liberal with so little in the way of relevant qualifications or track-record outside an ideological cocoon. Just saying. Where’s my fellowship?