I'll Take Door Number Three

I’m reading this PDF report from First Trust, and it’s like reading the news from Planet Wambeeno. Take a look yourself:

Apparently, the economy grew at an anemic 0.4% annual rate, not 1.9%.

We didn’t like it either, until we realized that most of this revision was due to fewer inventories, which, if anything, creates more room for future growth. Not all revisions were negative. Real growth in 2010 was revised up to 3.1% from a prior estimate of 2.8% and pre-tax corporate profits are now estimated to be 9% higher than originally thought. After-tax profits were revised up 15%.

So far, so good, I suppose. I’m as overeager for good economic news as the next guy. Although these days the next guy probably doesn’t have a job, so maybe I’m not quite as eager as he is. Anyway. Let’s continue:

It turns out, at least until the next big revisions, that the recession (in 2008) was worse and the earliest stages of the recovery in 2009 were slower. This helps explain, for now, why the unemployment rate went so high, so fast. It also makes the recession look more like a panic, which we believe it was.

This is where I get very, very confused. 2008 was a panic? Maybe in part, sure. But a huge chunk of wealth was very quickly and unceremoniously hacked off the economy, as years of bad mortgages came crashing down, nearly bringing Too Big to Fail down with them. So, yes, I suppose that would cause a bit of a panic — but not an unreasonable panic.

And the economy usually recovers quickly from panics. Euphoria replaces panic as everyone realizes that things weren’t really so bad, and people get back to the serious business of trying to make a buck.

Obviously, that hasn’t happened this time around.

So one of two things must be true. Either there was no old-school panic. That is, the economy was wounded quite badly and will take a long time to recover. Or, the Wall Street/Fannie/Freddie mess really was just a panic, but there’s something preventing the economy from making the expected rapid recovery.

No, wait — there’s a third choice.

The economy was wounded quite badly, but record debt, record spending, paralyzing tax worries, a rapacious EPA, and out-of-control NLRB, a broken and saddled medical profession, and the conglomeration of Wall Street and Washington into one massive and horrific beast have all combined to crush the life out of the economy.

So… I dunno. What do you think?