Remember the “inverted yield curve” last spring that spooked investors and delighted Democrats? The markets were alerted by a Duke Fuqua Business School professor, Campbell Harvey, who noticed longer-term T-bills were paying more than shorter-term T-bills. Turns out Treasury yields reached parity on October 10th and optimistically widened last Tuesday. Yes, and stock market indices hit all-time highs, unemployment is at record lows, and US-China trade ministries are barreling toward a deal. Sounds good, right?
Except Professor Harvey now warns US businesses to be prepared for the worst. Heh-heh-heh! The egg-on-face professor now defends his model to Bloomberg News: “I’m not naive about this. The model is very simple. There will be false positives. It’s inevitable that there’s a business cycle. It’s way better to have a plan [for a downturn] to go by than find yourself in a situation where the recession hits and you have to improvise.”
What a bunch of mumbo-jumbo: he even claims his school’s CFO survey (which he co-founded) puts business optimism at the lowest level in three years. Honestly, wouldn’t you respect the professor more if he just owned his formula? After all, when investors see a looming recession, the yield curve does invert; therefore, the un-inversion might suggest investors now see the recovery on the other side. That works for me and my post-graduate education in economics.
I suspect Harvey is more interested in making his ISJAM point (I’m Smart Just Ask Me) than avoiding the pain of a recession. This makes him no different than New York Times economic pundit Paul Krugman, who predicted right after (and because of) Trump’s election a “global recession with no end in sight.” While everyone keeps working and investing, Krugman keeps wishing and hoping for a recession:
February 2019 – “[I expect] a global recession this year [and] we don’t have an effective response”
April 2019 – “A pretty good chance of a recession sometime in the next year”
August 2019 – “Why Was Trumponomics a Flop?”
August 2019 – “From Trump Boom to Trump Gloom”
September 2019 – “Trumpism Is Bad for Business”
October 2019 – “Here Comes the Trump Slump”
October 2019 – “The Day the Trump Boom Died”
Somebody at The Times needs to point out Krugman’s obvious bias toward President Trump. Like a breath mint offered in self defense, constructive criticism is more than a hint. Mr. Krugman, who studied at Yale and MIT, should know better than to turn his science (economics) into the dark arts of being the smartest guy in the room: he would rather be right about the iceberg’s damage to the Titanic than comfortably finish the voyage to New York.
His is a thinking trap – when the more likely scenario is (1) Obama kept economic growth for too long muzzled, (2) pent-up demand hit unseen levels, (3) lower taxes and de-regulation unleashed investors and consumers, and (4) Americans had/have a lot of economic “catching up” to do. As for Mr. Krugman, one day he will be right about a recession – – and you can bet he’ll claim he knew it all along!