No, Larry Kudlow, The Recovery Is NOT V-Shaped

By Shlomo Maital

Economic Activity in the World’s Major Economies

     ImPOTUS (Trump) has surrounded himself with a battery of sycophants, including his chief economic advisor Larry Kudlow, who continues to insist the economic recovery will be V-shaped – sharp drop, and sharp recovery. The reason this is so destructive, is that much more stimulus is needed for the US economy – but the wrong-headed view that full recovery is imminent will prevent it. It is so painful to see crackpot economists running economic policy, when the US has stadiums full of truly brilliant economists, many of them Nobel Prize winners. The price for this folly will be heavy.

   According to Bloomberg, the economic recovery – after a disastrous 40-80% decline in economic activity — has stalled, and is plateau-ing at around 80% of pre-pandemic levels.

“The recovery has stalled in major advanced economies, with some countries hitting a ceiling on activity that is below their pre-crisis levels, according to Bloomberg Economics gauges that integrate high-frequency data such as credit-card use, travel and location information. Euro-area economies such as Germany, France and Italy, along with Norway and Japan, are closest to their pre-pandemic readings, with Spain falling behind slightly. The U.K., U.S. and Canada are still far below their levels of activity at the start of the year”.

   That is actually terrible — because it means we are in a deep recession and are remaining there. Historically, when the world economy fell into recession, the US economy was the locomotive that pulled it out of the mud, with large demand on the part of American consumers.   Today, the US is run by those who reject any idea that the US has a responsibility for other nations’ wellbeing – and even if they believed they did, they are impotent.

     What is the reason? There are two. First, governments, especially in the US, do not understand that in the absence of consumer demand, only government can fill the gap, and massive amounts of spending are required to rescue the economy.   Debt-phobia (fear of public debt) is still alive and well — but if we remain stuck at 80%, even the existing debt will be tough to service, and if we can get back to 100%, the higher debt will be repaid from new revenues generated. Second, people are scared, uncertain (justifiably so), and are not spending. 

     People are not stupid. They see the weak government policies, and the US political deadlock – and hang on to their money. Even when restaurants do open, people are simply not going to eat in them. They understand that 80% far better than many economists and leaders.  They fell it on their flesh.

     The message here is – if you are fortunate enough to have current income, and not everyone does, set aside a portion of it, because you will need it in future.   I have been telling people this for years, in good times, and now, in bad times, it is still valid, because the bad times can persist or get even worse.