Sure, Why Not?

Former IMF economist Michael Mussa is as high as a kite, kids.

We all know the story: The economic recovery has begun in the United States and the rest of the world, but it will be sluggish and disappointing. Shell-shocked and over-borrowed American consumers will spend less and save more. Financial markets remain traumatized, so don't expect much of a boost from new consumer lending or corporate investing. Global trade is rebounding, but slowly, from huge declines. The only question is whether the recovery will be W-shaped (a double-dip recession), U-shaped (a slow and shallow expansion) or L-shaped (bumping along at the recession's trough). Except now comes economist Michael Mussa with a simple message: WRONG.

Mussa, a former chief economist of the International Monetary Fund now at the Peterson Institute in Washington, argues that the recovery will defy the prevailing pessimism. From mid-2009 to the end of 2010, he says, the U.S. economy will grow almost 7 percent, about double the 3.3 percent gain envisioned by the 50 or so economists in September's Blue Chip Economic Indicators. The world economy will also outperform, says Mussa. In 2010, growth will rebound to 4.2 percent from 2009's decline of 1.1 percent. By contrast, the latest IMF forecast in July has a 1.4 percent drop in 2009 and a feeble 2.5 percent gain next year.

Wow. Seven percent growth. That's insane, particularly sustained over six quarters. How does Mussa come to this conclusion?

It's not that he completely rejects today's conventional wisdom. American consumers, he says, have retrenched-and will continue to do so. He thinks the personal savings rate will rise from 5 percent at the end of the second quarter of 2009 to 7 percent by year-end 2010. (Note: in 2007, it was only 1.7 percent.) Still, consumer spending will increase, albeit at a slower pace. But Mussa sees something larger driving recovery. He invokes the Zarnowitz Rule, named after Victor Zarnowtiz, a leading scholar on business cycles who died earlier this year: deep recessions have steep recoveries.

So, his reason is "just because it will."

Nice. Deep recessions have steep recoveries because the ones in the past did. This one will be no different apparently, except for all the features of the recession that strongly indicate that this recession will still result in an extended period of slow to zero growth.

Clap harder and maybe ten million Americans will get their jobs back, too.

[UPDATE 3:00 PM] Who's more clueless on the economy, Mussa or Texas GOP Gov. Rick "What recession?" Perry?

Said Perry: "As a matter of fact ... someone had put a report out that the first state that's coming out of the recession is going to be the state of Texas ... I said, 'We're in one?'"

Paul Burka of the Texas Monthly: "This gaffe is going to stick. It is going to be national news. It will come back to haunt him in a campaign spot. If Hutchison can't make something of it, the Democrats can. You cannot be callous and cavalier when people are losing their jobs and their homes. I don't care how ideological the Republican base is. Unemployment in Texas just reached the 8% mark. Everybody knows someone who is suffering in these times. Everybody has lost part of their life savings. It could cost him the race."

Only poor people and Democrats lose their jobs in a recession, you know.