Hopeful Policymakers

Ben Bernanke is still an optimist:

The central tendency of their most recent projections for real GDP implies a decline of 1/2 percent to 1-1/4 percent over the four quarters of 2009. These projections reflect an expected significant contraction in the first half of this year combined with an anticipated gradual resumption of growth in the second half... Federal Reserve policymakers continued to expect moderate expansion next year, with a central tendency of 2-1/2 percent to 3-1/4 percent growth in real GDP.

His optimism is shared by Barack Obama, who is counting on that economic recovery to help him slash the budget deficit by the end of his first term.

Bernanke's outlook is more carefully hedged than Obama's: Bernanke clearly predicates the prospects for recovery on a turnaround in the financial sector. But even so, I think this strategy from the government is dangerous. Faced with a recession of unprecedented complexity and difficulty, it's surely most prudent to assume the worst, and be pleasantly surprised if things turn out better than expected.

Instead, we seem to have a plan based on hope: hope that the banks will be able to repay their loans rather than see them converted into controlling equity stakes for the government; hope that house prices will stop plunging; hope that employers will start hiring again; hope that America's animal spirits will rally like a beaten-up boxer coming back from a severe beating in a bad Hollywood movie.

Well, I'm not hopeful, and neither is the stock market: the S&P 500 is still below 750. All of this noise out of Washington just makes me feel that policymakers are as disconnected from the real world as ever. And that feeling is not conducive to getting me to go out and hire, or spend.