Recession on the Brain

Former Senator Phil Gramm, one of John McCain's economic gurus, seems to think that current economic problems are purely subjective, talking to The Washington Times about a "mental recession" and whining that "we have sort of become a nation of whiners."

My understand is that economic downturns do have a certain psychological component insofar as expectations make a different to the economy, but we're clearly living through some very real supply shocks. The rising cost of food and energy, coming at a time when many people are seeing the value of their main asset decline, naturally causes hardship and slows economic growth. The fact that everyone has more difficulty obtaining credit than they did a couple of years ago doesn't help matters. These are all very real phenomena.

Comments

Now, I don't really remember the 70s, but don't people bitch and moan about stagflation? Aren't we sitting on the cusp of another bout of stagflation? Right now unemployment isn't that bad, but wages are flat and the cost of living is going up, and assets are going down. Doesn't that make Gramm look "out of touch" with the average American?

Posted by freddiemac | July 10, 2008 11:50 AM

Gramm's involvement in mortgage loan reforms makes him an accomplice in our current, 'deregulation' prompted economic problems, and not some honored statesman to whom we should listen.

http://tinyurl.com/Foreclosure-Phil

Posted by El Cid | July 10, 2008 11:52 AM

It's just the Green Lantern theory of foreign policy applied to the domestic side. If we have the will and resolve, the economy will get better. We don't need any numbers to show that.

Posted by SP | July 10, 2008 11:59 AM

So McCain has Phil "The Asshat" Gramm on his campaign saying that we've got a "mental recession" and people are whiners. At the same time, his boss is saying the following:

Fannie Mae and Freddie Mac "are vital to Americans' ability to own their own homes," the presumptive Republican presidential nominee said in response to a reporter's question during a campaign stop at a diner in Livonia, Michigan. "They will not fail; we cannot allow them to fail."

Nothing's wrong, but we won't let Freddie and Fannie fail? Uh, looks like yet another mixed message from the McCain campaign.

Hey, John. Here's some advice. Anybody who was a major supporter of the policies that created the current economic woes, and who then says that they're not really there, shouldn't be asked for advice on ANYTHING. He's too stupid or too evil to be trusted.

Posted by LFC | July 10, 2008 12:01 PM

Furthermore, Phil Gramm is an jerk of historic proportions.

Posted by RWB | July 10, 2008 12:01 PM

The fact that asshole Gramm would give an interview to the fascist Washington Times, owned by convicted criminal and international terrorist Rev. Moon speaks volumes.

Posted by SLC | July 10, 2008 12:02 PM

The rising cost of food and energy has come from gradual demand increases, not supply shocks. Prices haven't shot up overnight--they've risen steadily over the course of 1-3 years as demand has increased.

That doesn't mean we're not in a recession, of course, but I don't see anything about the current situation that looks like a supply shock.

Posted by bottomofthe9th | July 10, 2008 12:03 PM

People whine when their expectations aren't met, and the fact that people have higher expectations is a very good thing, since it indicates a long period of prosperity. Gramm is correct in that a huge percentage of the population has never felt a recession similar to what was endured in the early '80s or those previously. That is a very good thing, however, and it is to be fervently hoped that it continues.

Posted by Will Allen | July 10, 2008 12:04 PM

Per Jacob Hacker, even many of us who are doing well realize that the wolf could be at the door rather quickly as the result of a single adverse development -- divorce, sickness, job loss. That psychological shift is the result of real economic phenomena, that is, economic uncertainty and disappearing safety net.

Posted by Barbara | July 10, 2008 12:16 PM

What an asshole. Although this was true in most of the 2002-06 time period, when the economy was pretty good but most people would tell pollsters they thought it was bad. Right now, it's bad, and Graham is a prick.

Posted by too many steves | July 10, 2008 12:17 PM

Social Security is a disgrace, and America is a nation of whiners.

Awesome economic campaign.

Why isn't the DNC/Obama campaign cutting ads with these soundbites yet?

Posted by jbryan | July 10, 2008 12:17 PM

This is not a new observation by political leaders. I believe that, in the past, the exact wording was "Let them eat cake".

Posted by Walker | July 10, 2008 12:17 PM

a lot of americans have always lived from paycheck to paycheck. I certainly have for the last ten years since I have been divorced. In the last three, I have seen the value of my wages go down as my heating bill has quadrupled, my electricity bill has tripled, my propane bill has doubled, and my food costs have climbed about fifty percent. Not to mention the gas increase for my car to go to work, which is considerable because I live in a rural area. EVen though I have received a slight wage increase each year, it has not kept up with the cost of living. So how do you think I'm doing now? I'm living more hand to mouth than ever. And I have two children who will be starting college in the fall. And I've just found out from my heating oil company that oil will be over five dollars a gallon this winter. I won't be able to heat my house this winter, and I still have two younger children at home. So after years of trying to make it on my own and be independent, I'm finally caving to my mother's repeated offers over the years to move in with her. Just so I don't ruin my credit even further, and so I can afford to help my children pay for college. The one upside? I've owned my house for fifteen years, so I still have equity in my home, unlike many Americans in the same boat as me.

I may be living differently from most people who read the Atlantic, or who live in D.C., or who run the country, but I'm not living differently from most Americans.

I've known for two years now that the economy is in trouble, based on my own troubles and those of the people I come into contact with on a daily basis. Politicians and upper middle class educated Americans have only come to that realization in the last six months or so. ANd some of you still don't get it, as evidenced by some of the comments on this thread.

And believe me, it's all a vicious cycle. All those consumers that Walmart has made possible will no longer be shopping like they used to. ANd a lot of people are going to stop paying their credit card bills and loan debt. BEcause they will have no other choice. And the cycle will go on. I predict that we're going to have more than a recession if it continues in this direction.

Posted by maria | July 10, 2008 12:17 PM

I've always thought that Phil Gramm's speaking style contained basic whining, no matter what he said or how he tried to say it.

That's the irony.

Posted by Garuda | July 10, 2008 12:18 PM

In addition to seeing the value of their main asset decline, don't forget that those lucky enough to have a 401(k) plan or otherwise own mutual funds have seen their value drop by about 20%. If you assume that the lower end of the earning scale has been hurt disproportionately by increased gas and food prices, and that the higher end has seen both their home and equities value drop, just about everyone is feeling bad these days.

But who exactly is whining about it, Phil?

Posted by KT | July 10, 2008 12:19 PM

So it's only in my imagination that UBS's largest shareholder is now Singapore. Phew, I was worried for a moment there that Mr. Gramm had lost millions of dollars in stock value!

Conflating stock prices with the economy, to some degree, but financials are hurting because of real things happening in sectors of the economy.

Posted by el duderino | July 10, 2008 12:22 PM

Now, I don't really remember the 70s, but don't people bitch and moan about stagflation? Aren't we sitting on the cusp of another bout of stagflation?

Well according to Paul Krugman, stagflation in the 70s was caused by unions demanding cost of living increases. Unions are comparatively weak these days so that shouldn't recur.

The best was Molly Ivins on Gramm.

http://www.motherjones.com/commentary/power_plays/2002/03/mean.html

"Hail and farewell to two of the meanest guys ever to serve in the U.S. Congress -- Senator Phil Gramm and House Majority Leader Dick Armey, both from Texas. What a barrel of knee-slapping fun they have been. As each winds up his final year in office, we could have a fine time recalling their Meanest Moments: The side-splitting occasion when Armey referred to Rep. Barney Frank of Massachusetts as "Barney Fag." The rib-tickling time Gramm wanted to deny food stamps to elderly legal immigrants on the splendid grounds that extending aid would only foster dependency, thereby incicting "a new personal tragedy on the most vulnerable among us."

Armey and Gramm represent the last of a certain style of antigovernment politician. Their favorite joke is that the 10 most-dreaded words in the English language are "I'm from the government, and I'm here to help you." They built their political careers by opposing everything the government does to help people, constantly disparaging and attacking the institutional form of the people's power. Corporate welfare is fine with Gramm, just not anything to help people; Armey, the true-believer ideologue, was at least more consistent, rejecting almost all forms of government spending."

Posted by Peter K. | July 10, 2008 12:24 PM

Things aren't great. But truthfully, I'm amazed that the economy has not tanked worse than it has, when you think of how much consumer spending in the recent past was supported by borrowing on rising home equity values. All of that has, of course, dried up.

Where's the demand coming from now? I guess exports are part of the story. But you wouldn't think that would be enough.

Posted by jbd | July 10, 2008 12:24 PM

McCain really should cut his 'nuts' out.

Posted by lampwick | July 10, 2008 12:27 PM

Recessions are usually defined as declines in output, but ~$2 trillion in assets have evaporated over the last 10 months. I think an expansion in what's considered a recession isn't unwarranted. People like me had been hoping to retire on the strength of those assets. Now, not so much.

Posted by Jeffrey Davis | July 10, 2008 12:28 PM

Maybe McCain should re-examine the wisdom of hiring a man who, according to his wife, isn't even really liked by his friends. I think the proper description for his voice is "braying."

And no one should pass up the opportunity to remind people that Phil Gramm singlehandedly made sure that Enron would have the right to use the accounting that it used to dupe the world -- and that Phil Gramm's wife was on the board of Enron at the same time he did that. A walking talking self-interested mean-spirited s***head. That's Phil Gramm.

Posted by Barbara | July 10, 2008 12:28 PM

My understand is that economic downturns do have a certain psychological component insofar as expectations make a different to the economy

Everytime you butcher the English language like this, God kills a puppy.

Keep that in mind.

"Me fail English? That's unpossible!"

Posted by BFR | July 10, 2008 12:33 PM

I've always thought that Phil Gramm's speaking style contained basic whining, no matter what he said or how he tried to say it.

That's the irony.

Posted by Garuda | July 10, 2008 12:37 PM

I've heard this several times from right-leaning economists: that all the economic indicators are OK, but peoples' perception of the economy is bad, therefore the people must be talked out of their perceptions. Stupid people! You should all get economics degrees so that you can assured of how good things are!

If people are persistently unhappy about the economy in contradiction of the economic indicators, then maybe it's time to look for some new indicators. You know, if you're still calling yourself an scientist, and not just an apologist for the status quo.

Posted by mark | July 10, 2008 12:38 PM

So what? Americans should not be whining just because they are struggling to make ends meet. Look at McCain.. he has 9 mansion like houses, McCains charge $750,000 to their credit cards during a single month, McCain receives $75,000 of tax payer dollars every year in disability payments.. look at McCain, he has so many problems but he still does not whine!

Posted by Tony | July 10, 2008 12:50 PM

Are we sure that all the decline in demand is due to insecurity and falling asset prices? Couldn't people have just looked around and decided things were getting silly? Everybody I know who wants a giant television seems to have one already, and I for one could go at least four years without buying any new shoes.

People have a lot more stuff in their houses than they did in the 1970s. A bit of using up and wearing out will do us good. The trouble is, if we aren't buying, somebody loses jobs.

I don't think this is the only thing going on -- gas prices do hurt some people. But I think a lot of people have just returned to ordinary budgeting discipline, which feels constricting if you haven't done it for while. That doesn't make it a tragedy, though.

Posted by M.C. | July 10, 2008 12:50 PM

So what? Americans should not be whining just because they are struggling to make ends meet. Look at McCain.. he has 9 mansion like houses, McCains charge $750,000 to their credit cards during a single month, McCain receives $75,000 of tax payer dollars every year in disability payments.. look at McCain, he has so many problems but he still does not whine!

Posted by Tony | July 10, 2008 12:55 PM

That's right. This recession is all about the stupdity of the American public, which doesn't know how good they have it. After all, this economy is the greatest story never told!

This is sort of like the time that Gramm's wife, Elaine Chao, the Secretary of Labor, said that American workers are slovenly and smell bad, and that's why they are losing out to competitors in Asia.

Yup. When you have a series of broad-based economic problems, blame the peasants. If they are hungry, they should supplement their gruel with cake. Whiners.

-- Bokonon

Posted by Bokonon | July 10, 2008 12:55 PM

I believe Japan has been in a "mental recession" for over 15 years at this point. Turns out they kinda suck despite being merely "mental".

Posted by DTM | July 10, 2008 1:07 PM

@Bokonon:

You had mistaken one "Asian American woman who advance her career by marrying white Republican senator" for another. You do know they don't "all looks alike."

Phil G. is married to Wendy. Elaine C. is married to Mitch M.

Posted by kanchou | July 10, 2008 1:13 PM

the time that Gramm's wife, Elaine Chao, the Secretary of Labor

Gramm is not married to Elaine Chao. His wife is Wendy Gramm, the former head of the Commodity Futures Trading Commission and Enron Board member.

Posted by rea | July 10, 2008 1:17 PM

"His wife is Wendy Gramm, the former head of the Commodity Futures Trading Commission and Enron Board member."

Yes, and before she left the CFTC to join Enron, she began the practice of issuing 'hedger' exemptions to swap dealers, which allows them to bring as much Wall Street cash into the commodities market as they please. You see the result every time you fill up -- $4 gas and $5 diesel.

Posted by John West | July 10, 2008 1:52 PM

"His wife is Wendy Gramm, the former head of the Commodity Futures Trading Commission and Enron Board member."

Yes, and before she left the CFTC to join Enron, she began the practice of issuing 'hedger' exemptions to swap dealers, which allows them to bring as much Wall Street cash into the commodities market as they please. You see the result every time you fill up -- $4 gas and $5 diesel.

Posted by John West | July 10, 2008 1:53 PM

Sorry -- you guys are completely right. Elaine Chao is married to Mitch McConnell, not Phil Gramm. My bad.

Posted by Bokonon | July 10, 2008 2:21 PM