Jan 13, 2009

Good news about the crisis...or is it ?

Finally, good news about the current economic crisis. According to a vox column from these two professors, the crisis might be over sooner than the common predictions. The reason is that some important measures of business and political uncertainty has been falling lately, indicating more stability and confidence to conduct business. It means businesses are no longer hesitated to invest and hire people which would lead to economic growth in the near future.

I wish this prediction comes into reality. But as the famous joke say that if there are 10 economists there would be 11 predictions, you can see some evidences to say the opposite.

While it might be true those uncertainty indexes have been improving, both researchers focus only on the measures affecting the supply side. Economy is not only about businesses doing the investment and hiring, but also about consumers spending their money. Businesses do not invest and hiring people because consumers cut spending and postpone unnecessary shopping. The list of unnecessary items is getting longer nowadays.

How do you expect consumers to spend money if people are still uncertain whether to have their jobs and income next month? Or if they are still uncertain whether their saving and pension accounts are safe and readily available during worse situation? The recent US consumer index shows that the index has reached new all-time low and consumers are reluctant to spend their money (Swiss index has also been falling for more than a year, and not reached the bottom yet).

The column certainly gives a kind of summer breeze into this freezing winter; but don’t expect too much on the prediction.

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