Tarzan confused

Tyler Cowen sums up what a lot of us are feeling right now:

The housing sector is down twenty percent and the price of oil is flirting with $90 a barrel, maybe $100 to come. Yet the quarterly growth rate was just reported at 3.9%:

The economy expanded faster than expected in the third quarter, led by a surge in consumer spending and exports, the government reported today.

It is wrong to think we have turned the corner, but it is also wrong to think the doomsayers understand what is going on.

I have been expecting a recession for several quarters now. So far, I have been consistently wrong.

Politically, I think this is going to make things very interesting. I presume a Democrat will be elected in 2008. The longer we go without a recession now, the more likely it is that whatever Democrat we elect will have a deep recession during their presidency, something that hasn't happened to them since Carter. Cactus may think the Democrats have some magic economic mojo, but I'm betting on the business cycle. Don't get me wrong--we've still got a year to go, and I think it's more likely that Bush will catch the end of the current expansion than his successor.

The next term is going to be pretty interesting, in terms of watching what wonks say about presidential impacts on the economy. If Bush doesn't end up with a recession on his watch, the next person in office will almost certainly catch a nasty twofer: a deepening hole opening up in the budget due to entitlements, and a recession that will make any such problems desperately worse. I expect a neat (and amusing) flip between Democrats proclaiming that deficits don't matter, and anyway, the president has limited power over the economy; and Republicans righteously screaming about fiscal responsibility.