Glenn Hubbard puts odds on good times, recession

This is good information. I will be making adjustments to my spending and savings behavior based on what Glenn Hubbard. I appreciate that you give your readers such valuable information, Justin.

I wouldn't place too much emphasis on Hubbard's failure to predict the 2001 Bush recession....because there was no reason to suspect that there was a recession coming until Bush forced one on the country.

Everything was going swimmingly until November 2000, and the whole Florida mess. If you go back, you can read lots of articles about how the "uncertainty" was bad for the markets -- "bad news" was better than "uncertainly", and the month long battle over who would wind up in the White House spooked the market.

The 2000 Black Friday was perceived as a disappointing....sales were down from projections, and it was blamed (at least in part) on "consumer uncertainty" thanx to Bush/Gore.... and sales continued below expectations...

At this point the economy was shaky, but still in pretty good shape. Corporate profits and the related projected federal budget surpluses were probably not going to meet expectations, but all that mean was slower growth than expected, not recession.

Unfortunately, Bush had run on cutting taxes based on projected massive surpluses.... and with those surpluses not materializing right away, he had a problem. His solution --- literally within days of his appointment by SCOTUS, Bush announced that there was a recession coming, and his tax cuts were needed to enhance economic growth.

And that was all that consumers needed to hear. Christmas spending by consumers was scaled WAY back...retailers were left with tons of product on their shelves despite profit-killing price reductions, and a recession materialized "like magic."

in other words, Glenn Hubbard failed to predict what a craven idiot Bush was.... but back then, few people were saying that.

But consumer spending never actually dropped in 2001. It certainly rose more slowly than it had in 2000, but business investment went from adding 1.06% to GDP in 2000 to subtracting 0.52% in 2001. And that strikes me as more a hangover from the stock market bubble than the result of anything Bush did. I guess if consumer spending had remained stronger that would have prevented a recession, but without the business downturn there would have been no risk of a recession.

I'm totally with you, though, Paul, on pillorying Bush for going from claiming tax cuts were needed because there was a big budget surplus to claiming tax cuts were needed because the economy was in trouble. Because if you were really trying to help the economy through some temporary trouble the Bush cuts weren't the ticket.

What are the believers in cyclic behavior saying? I think I read a few years ago that they gave us until 2012. Anybody hear differently?

"But consumer spending never actually dropped in 2001. It certainly rose more slowly than it had in 2000, but business investment went from adding 1.06% to GDP in 2000 to subtracting 0.52% in 2001."

I didn't say that consumer spending dropped...rather than it did not meet expectations. In October 2002, the economy was humming along nicely, and consumers and businesses were confident in the future. Retailers had prepared for a record-breaking Christmas season --- and businesses were spending money on expansion based on the expectation of a growing economy.

But when Bush announced his recession, the "record-breaking" Christmas season disappeared. Retailers were left with lots of unsold products on their shelves that they had to sell at considerable discounts, creating a cash crunch that translated into smaller orders for the summer and fall retailing seasons. Businesses, which had been making plans based on economic expansion, suddenly found themselves with excess productive capacity -- and excess inventory -- resulting in the reduction in investment that you note (despite Greenspan cutting Fed rates to the bone --- if you already have more capacity and inventory than you need, it doesn't matter how low interest rates go, you aren't going to borrow money to expand.)

The key thing here is that NO ONE was predicting a recession in October 2000... but within months Greenspan was panicking and cutting rates. The question is "what happened so suddenly?" And, IMHO, the answer is that in a time of uncertainty, instead of expressing confidence in the economy, Bush said we were headed for a recession.

From my perspective, the 2001 recession (didn't the Economic Board actually declare the beginning of the recession in October 2000?) was not hard to see coming. Everyone I knew in high tech with any sort of experience was obsessed with getting out of startup companies and into large stable employers. What we saw were tech companies with huge valuations making no money to speak of, barely literate people (and I'm not exaggerating) hired into high-paying technical jobs, and huge amounts of investment capital being thrown at terrible business ideas. Most people who had been around the block once or twice knew the party was going to end, and end soon.

According to the Business Cycle Dating Committee at the National Bureau of Economic Research, the last recession ran from March 2001 through November 2001.

My poor recollection. Thanks, Justin.

Peter...
can you find me one economist/wall street analyst that was prediction a recession in October 2000.

If "everyone saw it coming", I'm sure there are lots of examples of it, and its my inadequate googling skill that prevent me from finding them.

I would guess that both Alan Sloan and Robert Samuelson both wrote about the prospect of the 2001 recession before it happened. But my experience is purely anecdotal, speaking to a couple hundred different people in high tech, from engineer to executive, in the previous year. Every single one knew that a reckoning was coming, and the responses ranged from "I have to make my fortune while it's possible" to "I have to find a nice stable job to ride out the storm."

I couldn't tell you what the financial writers were saying; the only one I can stomach reading is Justin .