Why Isn't the Economy Worse?

Given that we are supposed to be in the worst housing and financial crisis since the Great Depression, it is certainly curious—at least to the media, left-of-center economists, and Wall Street permabears—that like, you know, the economy is sorta-kinda OK. (My pal Bob Stein, economist over at First Trust Advisers, thinks real GDP grew at 3 percent in the second quarter.)

Here's puzzled economist and blogger Brad DeLong:

I still do not understand why the real side of the economy is doing so well in relative terms. The worst financial distress since the Great Depression ought to trigger the worst downturn in demand, production, and employment since the Great Depression. It hasn't—at least not so far.

Me: My theory is that the amazing resilience of the American economy through this slowdown—as well as the lack of a bad recession in a generation—is indirect proof that the 25-year economic expansion that started in 1982 made us far richer as a nation than the economic numbers suggest. I have continually offered that the inflation numbers used by the government have for years overstated how much prices have risen. Plus, the wage numbers put out by the government are currently being revised to better reflect the shift in jobs from "old economy" to "new economy."

Have American living standards, as Democrats often suggest, really been stagnant since the 1970s? I doubt it.

Tim Duy over at Economists' View has his own theory.