There has been a good deal of discussion about the slowness or the weakness of this recovery. My analysis is that recoveries from financial collapse take longer than a normal garden-variety recession, because it takes so long to de-leverage or reduce debt levels. But, here is another take on the slowness of this recovery.
If we define a "massive bear market" as one where an index declines by 50% or more, there have been four of them since 1896. Three measure the Dow, and one measures the Nasdaq. If you look at this chart, you can see that all four recoveries have been slow or weak for the first 800 days.
If we define a "massive bear market" as one where an index declines by 50% or more, there have been four of them since 1896. Three measure the Dow, and one measures the Nasdaq. If you look at this chart, you can see that all four recoveries have been slow or weak for the first 800 days.
The strongest of the four recoveries was in 1932, following a financial collapse, but not particularly strong during the first 800 days, when a strong bullish rally began. If we were to follow the same course, it would be time to start now!
My take is that all this is merely coincidental, although interesting. Following the financial collapse of 1929, the government had the ability to take a Keynesian approach or borrow heavily to spend. The government does not have that luxury now. Therefore, I don't expect such a strong bull rally now. We have already used our "dry powder" paying entitlements and funding wars, which prevents us from dealing with the present collapse by using a Keynesian approach. That only leaves us with the Austrian approach to cut spending and raise taxes. This does not quicken the recovery, but it makes the recovery more strong and sustainable.
As discussed in this blog before, increasing corporate income taxes would not help the economy as much as increasing personal income taxes. Corporate tax rates are much higher in the U.S. than any other developed nation and should actually be cut.
For those armchair economists who wonder why not take the Supply-Side or Laffer approach of cutting both spending and taxes now, we have found that approach works best when the economy just needs to be "jump-started" instead of fundamentally "fixed." And, does anybody think our country doesn't need to be "fixed?"
There will be time to jump-start the economy later. We need to fix it now.
