NABE Finally Gets to the Party - However Dismal it Is

November 17, 2008 - We are not big fans of the National Association of Business Economists, who have been ridiculously behind the curve on the unraveling of the global financial markets, and have voiced our criticism on more than one occasion. That being said, it will continue to get attention on Wall Street when it reports its views, so we need to at least acknowledge that this morning NABE said it expects GDP will decline by 2.6% in Q4 and will be down 1.3% in the first three months of 2009.

NABE’s President said “Business economists became decidedly more negative on the economic outlook for the next several quarters as a result of the intensification of credit market stresses and evidence of spillover to the real economy.” Gee – you think? Here is what we wrote, in response to a NABE report back on July 26, 2007:

Earlier this week, the National Association for Business Economics (NABE) released its July NABE Industry Survey(1), whose headline was titled “Second-quarter Rebound Portends Smoother Sailing Ahead.” To be sure, the second quarter’s growth was a welcome surprise after the rut the economy seemed to be in during the first quarter. However, we think NABE is taking a pretty optimistic stance, given the fact that several underlying economic fundamentals to our economy remain shaky at best.

And then here is what we wrote in response to NABE in August, 2007:

NABE Is Out of Touch With the Economy

August 27, 2007 - The National Association for Business Economics (NABE) is weighing in with its monthly reading on the health of the economy today. As an indication of how out of touch NABE is, in our opinion, we would merely quote its headline finding: “Financial market turmoil has shifted the focus away from terrorism and toward subprime and other credit problems as the most important near-term threats to the U.S. economy,” says Carl Tannenbaum, NABE President and Chief Economist, La Salle Bank/ABN-AMRO. “However, these concerns appear to be somewhat transitory, as the five-year outlook for housing remains positive.”” (NABE’s August 2007 Survey).

While we agree that financial market turmoil has certainly become the focus, we can’t disagree more that terrorism is or should top the list as a near-term threat to the U.S. economy. Granted, the administration’s policies are controversial at best, and likely that they have increased the likelihood of retaliatory terrorist activities here at home. But that the potential of a terrorist attack would outweigh the threat-level of the massive and burgeoning national debt, or the deteriorating dollar, or the fact that personal savings remain negative while consumer credit is at all-time highs, as top threats to the economy is insane.

Or maybe we are. After all, being compelled to comment on the implications of a rising national debt, our second in command glibly retorted that “Reagan proved deficits don’t matter.” And when addressing the nation, reeling in the aftershock of the events of September 11, it was our first in command that suggested that “we all go shopping” while he handle the heavy-lifting of defending the country against terrorism.

Apparently NABE has bought the propaganda and actually believes it. By the way, government spending ranks lowest on the list of NABE scholar’s concerns at 3 percent, whom regard it as the greatest near-term threat to our economy.

Thank God there some economists out there that aren’t buying it. Pace George Akerlof, a Nobel economist that went so far as to take out an ad in the NY Times indicting the current administration as being the worst economically in the nation’s history (Download the ad) . And we would contend that it is the administration’s fiscal policies that are the greatest threat to our economy. Akerlof was early to the party with his, and his peers’ criticism of Bush’s policies. Most recently, Bill Gross, the manager of the country’s largest bond fund has become vocal in urging that the administration’s fiscal policies have got to be amended if we are to navigate out of the current economic heavy weather that we are heading into, writing that “The ultimate solution, it seems to me, must not emanate from the bowels of Fed headquarters on Constitution Avenue, but from the West Wing of 1600 Pennsylvania Avenue. Fiscal, not monetary policy should be the preferred remedy,…”We agree.

Well, we have been admittedly critical of NABE but there is good reason for it. When you have a public forum the way NABE does, to be as wrong as it has been on the economy for so long, it is dangerous, in our opinion. After all, NABE sets expectations that many businesses listen to and use for planning and execution of their own operations. Now, it appears NABE arrived at the obvious conclusion that the economy is recessing. Welcome to the party.