Roundup From the Morningstar ETF Invest Conference 2011

Wesbury: We're Afflicted With Economic Hypochondria
Brian Wesbury kicked off Morningstar's 2011 ETF Invest conference with an energetic argument that irrational fear is creating an environment of unfounded pessimism around the economy. Macroeconomic indicators such as corporate price/earnings ratios, personal-consumption levels, and projected decreases in government spending, he said, actually paint a picture of an economy on the brink of a major boom.

The First Trust Advisors chief economist and frequent media contributor said conventional wisdom believes the 2008 economic collapse and struggles since were the fault of predatory mortgage lending and the resulting derivative investment vehicles. Conventional wisdom also holds, he said, that the United States' response, including the Troubled-Asset Relief Program, is all that saved the U.S. and global economies from an irreversible catastrophe.

Conventional wisdom is wrong on both counts, Wesbury argued. For decades, policymakers have aggressively pursued creative initiatives to improve Americans' ability to own homes, cultivating a culture of personal debt waiting for an eventual collapse. "Everyone in Washington wanted [all Americans] in a house," he said. "There is no person without sin in Washington."

And as much as government efforts contributed to the collapse, he said, they're impeding recovery. "When government spending is cut, yes, GDP will go down, but consumer spending goes up. The bigger the government is as the share of the economy, the smaller the private sector is."

Wesbury predicted that legislative efforts to reduce government spending are the start of a major downshift in public expenditures. The commercial sector will swell to replace the reduced government role in GDP, simultaneously stimulating job and income growth.

"The size of government has a massive impact on the dynamism of an economy. . The bigger the government is, the less dynamic the private sector is," he said, "... robbing the economy of its ability to increase productivity."

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-- Mike Brennan
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