Other economic factors to live by
The recession seems overwhelming when watching Wall Street players react to dropping stocks around the world. But commentator Will Wilkinson says the real engine of the American economy is chugging along elsewhere.
Commentator Will Wilkinson (The Cato Institute)
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TEXT OF COMMENTARY
Scott Jagow: This week, the people who determine whether or not we're officially in a recession said we are. The National Bureau of Economic Research said the economy peaked a year ago. We haven't had two straight quarters of negative GDP yet, but there are enough other signs to make the call. But commentator Will Wilkinson says the news isn't all bad.
Will Wilkinson: Recessions hurt, and this one's going to keep hurting for a while. But maybe I can brighten the gloom.
For most of the media, Wall Street is the economy. The papers and pundits track its ups and downs as obsessively as they track Madonna's love life. And Wall Street, like Madonna's marriage, lies in ruin.
But Wall Street is in not, in fact, the heart of the economy. The implosion of financial markets, and the gut-wrenching drop in stock values creates an illusion of total economic crisis for folks watching from the couch at home. But far from lower Manhattan, the real engine of the American economy continues to chug along.
According to University of Chicago economist Casey Mulligan, the performance of the non-financial economy -- the part that actually makes the stuff that improves our standards of living over time -- is strikingly independent of the performance of financial markets.
What matters most for prosperity is the effectiveness of the non-financial sector in delivering bang for each buck of capital that goes into it. Mulligan says that the crucial "marginal productivity of capital" over 2007 and the first half of this year was higher than the average since World War II.
The role of financial markets is to allocate capital to its most productive uses. When they get gummed up, the economy suffers. But the basis of our prosperity is the entrepreneurial energy and innovation that improves our efficiency over time. That foundation remains firmly in place.
We're going to get out of this downturn, but that will happen sooner if the government stops trying to prop up already failed financial giants. We'll best ensure continued investment in our still-vital economy if we let new financial players rise from Wall Street's ruins.
Jagow: Will Wilkinson is a research fellow at the Cato Institute.
Comments
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From Dallas, TX, 12/03/2008
Alex, why do you make a claim without knowing if what they said its right or wrong? You are acting like your complaint...YOU look it up and prove it if its just propaganda. They already know their point of view and their research.
From Chicago, IL, 12/03/2008
Your commentary lacks any facts to back it up. How can you make broad comments and only reference one economist without any specifics? What parts of the non-finacial sector are doing well? What about all the companies who are not part of the financial sector that are laying off workers? Are all of these the result of poor performing business or the financial sector, or maybe its the ECONOMY!!!!??????? Then you say that the government will only hurt the economy if it continues to help the businesses that are struggling. Well, then, how is it hurting the economy by keeping businesses afloat and also the jobs of the people who work there? Are you just saying we are fine, and its just Wall Street that is having problems and then what is the impact of these problems on the greater economy? You haven't made any real points here except your own liberalists views which are that government should never intervene. In that case, your commentary would never change, no matter the circumstance our country is in. Since all of your views are the same and are not backed by any facts, why do you continue to make them... ???????? This is the difference between an argument and just propaganda.
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