The Worse the Economy, the Better the Recovery

Jim Grant has a typically smart piece in the WSJ. Although he’s known to be a pessimist, Grant has turned bullish recently:

Americans are blessedly out of practice at bearing up under economic adversity. Individuals take their knocks, always, as do companies and communities. But it has been a generation since a business cycle downturn exacted the collective pain that this one has done. Knocked for a loop, we forget a truism. With regard to the recession that precedes the recovery, worse is subsequently better. The deeper the slump, the zippier the recovery. To quote a dissenter from the forecasting consensus, Michael T. Darda, chief economist of MKM Partners, Greenwich, Conn.: “[T]he most important determinant of the strength of an economy recovery is the depth of the downturn that preceded it. There are no exceptions to this rule, including the 1929-1939 period.”

Ah, our old friend Mr. Reversion to the Mean. He’s made smart people look dumb and dumb people look smart.

Posted by on September 21st, 2009 at 2:15 pm


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