by Calculated Risk on 10/09/2005 02:55:00 PM

An ever growing chorus of pundits are expressing concern about the economy. Robert Samuelson writes in Newsweek: So Long to the Wealth Effect? and Marshall Loeb for MarketWatch: How the boom of 2006 ended

Marshall Loeb expresses concern about the current economic situation. Loeb writes from a future prespective (2007) and observes:

"We should have seen it coming.

We were living beyond our means, saving absolutely nothing, spending more than we were earning -- like there was no tomorrow.

Most Americans were doing that. Worse, the government was doing it -- piling deficit upon deficit. ... But, as it always does, profligacy caught up with us. And the economy, which had been growing at a comfortable 3 to 4% rate for many years, came crashing down last year, in 2006."

He compares Bush to LBJ:

Historians know that, for example, Lyndon Johnson brought the economy to perdition in the 1960s and 1970s by not leveling with the American people about the true total cost of the Vietnam war (about $121 billion). Reason: LBJ wanted to pursue both his war and his costly Great Society domestic programs at the same time.

So, too, George Bush tried to pursue his war in Iraq (total cost: more than $200 billion by the end of 2005) and simultaneously to spend $150 billion or more to rebuild the Gulf Coast after the catastrophes of Hurricanes Katrina and Rita.

Unfortunately, Loeb overlooks the deleterious impact of Bush' tax shifts that are the primary cause of the significant Federal General Fund budget deficits.

The Samuelson piece is a reasonable summary of the asset based economy. Others, like Roach, Krugman and Volcker have expressed similar concerns. Dr. Thoma provides this postscript:

"The potential solutions to the global and domestic imbalance problems have been discussed extensively here and elsewhere, so I won't try and recount them all again, but one way to summarize them is that with smart monetary and fiscal policy and gradual adjustment in the U.S. and elsewhere, we have a chance of a soft landing. But if current policies continue, the chance of a more difficult adjustment period will rise." (emphasis added)

If we keep doing what we are doing, a hard landing is likely. Unfortunately, as Koeb demonstrated, many observers can't agree on what "smart" monetary, fiscal and public policy should be.