Is Today's Really Bad Economic Bad News Really... Really Good News?

The always thought provoking David Leonhardt has one of his better columns in tomorrow's New York Times. Below is his opening... and his closing... on why too much economic good news can turn out to be ... bad news... just as some bad news can end up being... good news.

Better yet, though - just click on the above link and read the whole article.

November 14, 2007

Economic Scene

A Close Look Reveals Silver Linings in the Economy

By DAVID LEONHARDT

Until yesterday’s rally on Wall Street, the news on the business pages has sounded pretty grim lately. Stocks are still down 6 percent from their peak this year, and oil is near a record high. The dollar, incredibly, is worth only 96 Canadian cents. And house prices will be falling for a long time to come.

So in an effort to cheer everyone up before Thanksgiving, this column is going to focus today on some good news. Here it is:

Stocks are still down 6 percent from their peak, and oil is near a record high. The dollar, incredibly, is worth only 96 Canadian cents. And house prices will be falling for a long time to come.

Seriously.

As long as the financial system doesn’t have a major meltdown, none of these developments will turn out to be as bad as you think. Some of them are downright welcome.

Too often, we think about the economy without nuance. We treat it as a local sports team that is either winning or losing, up or down. We’re always supposed to be rooting for stocks and homes to become more valuable and for oil and overseas vacations to become more affordable.

But that’s not quite right. There are real downsides to an economy full of expensive assets and inexpensive resources. There are also a lot of people who are better off because of the recent turmoil. You may well be one of them.

And in his closing paragraphs...

The other ostensible pieces of bad news have their own silver linings. As the cost of gas has soared to $3 a gallon, from an inflation-adjusted low of about $1.20 in 1999, Americans have finally started buying more efficient cars and trucks. For the first time since the mid-1980s, the fuel economy of new vehicles has increased for two straight years, the Environment Protection Agency recently reported. This will slow global warming and make life a little less comfortable for oil-rich autocrats (though not nearly as much as a carbon tax would).

The fall of the dollar, meanwhile, may be precisely what the world economy needs right now, as James Paulsen of Wells Capital Management points out. It provides a lift to the sagging American economy, by allowing companies in the United States to export more, while encouraging consumers to spend less on imports and save more.

It’s not even clear that falling house prices are such a bad thing. They don’t really matter for families who aren’t planning to move. They don’t even matter much for families moving to a similar house in a similar market. The house they are buying will have gotten cheaper, too.

Families hoping to buy their first house, on the other hand, clearly benefit. (Easy for me to say, though. As my boss pointed out when he heard about this column, I’m a renter and still decades from retirement.)

There is no question that people have gotten hurt this year. Many families have struggled to pay their bills. Others have had to delay retirement, and thousands have lost their homes to foreclosure. In an ideal world, the imbalances in the economy would never have become so extreme.

But once they did, what, really, was the alternative to the recent turmoil? An ever-higher stock market, ever-cheaper oil or an ever more insane mortgage market wouldn’t have solved the problems of the American economy. It would have made then worse.

E-mail: leonhardt@nytimes.com