an excellent post from Scott Grannis at Calafia Beach Pundit, The Bad news is why I am optimistic

Grannis is one of my favorite economics bloggers- and one of the few that seems to combine a sense of harsh reality with a sense of optimism. He is strongly data driven yet retains a human element in his analysis.


As I noted some years ago, all the spending and borrowing that was supposed to “stimulate” the economy was essentially flushed down the toilet. Since 2009 we’ve conducted a laboratory experiment in the power of government spending to grow the economy by stimulating demand, and the result is proof that Keynesian theories are destructive, not stimulative. Neither government spending nor easy money has the power to create growth out of thin air, but politicians want to convince you that they do. The economy is weak today because we have wasted many trillions of dollars on transfer payments that only create perverse incentives to work less.

The biggest negative of them all is that the US economy is not nearly as large and as healthy as it could or should have been, had policies been better designed. This has been the weakest recovery in post-war history, and by a lot. If the economy had rebounded from the Great Recession with the same vigor it displayed in every post-war recovery, national income would be almost $3 trillion higher than it is today, as the chart above illustrates. Per capita income would be almost $9000 higher, and a family of four would be making $35K more every year. That’s real money, and it explains why the electorate is so upset these days with the establishment.


I guess his reasoning is that it is more likely to get better than to get worse.  One can err from excessive pessimism as much as excessive  optimism and the effect on your investments would be worse.