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I know I saw that recession around here somewhere . . .
31 Jul 2008 11:56 am
The economy grew at 1.9% last quarter. Two thoughts. First, the American economy is simply amazingly resilient--1.9% is cause for exultant celebration in a lot of European finance ministries. And second, Barack Obama's campaign team is probably doing some serious rethinking this morning.
Barack Obama's campaign team is probably doing some serious rethinking this morning
Why? I think you're suffering from a common economist's misconception, that the average American gives a shit about real economic indicators. They don't; they care about their individual economic situation and how they perceive it. That's why gas prices are such a disproportionately important issue to so many people. The job market is terrible, gas is expensive, and people are seeing their homes continue to depreciate. That's what they're reacting to. And, by the way, there's nothing inherently illegitimate about their doing so.
And, you know, John McCain does not have anything resembling a coherent economic policy. So there's that, too.
I realize you may just be proving your own point, but how exactly is a job market with 5.5% unemployment "terrible". Like the 1.9% growth figure, most European finance ministries would cheerfully maim puppies if it would get that sort of performance.
And, by the way, there's nothing inherently illegitimate about their doing so.
Sure there is. Voting based on knowingly and admittedly biased and self-serving misperceptions of reality would seem to be a species of negligence, and possibly fraud.
Is that 1.9% adjusted for inflation?
Uh... since when did politicians ever pay attention to facts on the ground when making claims about the economy. It's either great because you want to get elected, it was great, but not anymore, because your party was doing a good job when it was in power, or its doing fine (better than expected) because you are in power.
Obama will still use the mantra of nearly all politicians seeking to get elected that the economy is in the tank and he can fix it.
Voting based on knowingly and admittedly biased and self-serving misperceptions of reality would seem to be a species of negligence, and possibly fraud.
Voters vote their own best interests, and if everyone does, the good of the people is served. That's the bedrock principle of democracy.
Like the 1.9% growth figure, most European finance ministries would cheerfully maim puppies if it would get that sort of performance.
Most European countries offer their citizens robust social programs to mitigate the (very real) hardship of tough economic times. But, of course, around here suggesting that the free market will ever produce anything other than god-like perfection on earth is like saying we should drown kittens, so I demur.
So we borrow another ~$150B for the "rebate checks", artificially creating ~1% GDP growth as those checks are spent, and now we're supposed to celebrate 1.9% growth, which is most likely negative real growth? Please.
How do you reconcile your assessment with the assessment of, basically, everyone else?
(Bloomberg) -- The U.S. economy shrank at the end of 2007 and grew less than forecast in this year's second quarter, signaling that the country is in worse shape than investors had anticipated.
(Bloomberg) -- The U.S. economy may have slipped into a recession in the last three months of 2007 as consumer spending slowed more than previously estimated and the housing slump worsened, revised government figures indicated.
(Barry Ritholtz)--Across the board, this was simply a horrible, recession set of data:
Initial Jobless Claims: 448k. That's the worst level since April 2003.
Q2 GDP: 1.9%, well below consensus of 2.3%.
Q4 GDP Revisions: Revised from +0.6 down to -0.2%; The first negative quarter (Don't say we didn't warn you) since Q3 2001.
Q1 GDP Revisions: Revised down to 0.9% from 1.0%
Note -- I expect these revisions will get revised even lower in the future.
Voters vote their own best interests, and if everyone does, the good of the people is served. That's the bedrock principle of democracy.
Sadly enough, that's not what people actually do. Instead, too many vote based on what they think would would be best for the country, irrespective of their interests. Since most voters have no idea of what is best for the country, no way of figuring it out beyond appeal to their own prejudices, and no incentive to even attempt to do any sort of good job at it, the results are unsurprisingly poor. OTOH, voting without regard to their own self-interest does let people feel virtuous without actually doing any hard work or thinking, and that combination is always going to be popular.
Voters vote their own best interests, and if everyone does, the good of the people is served.
Two points:
1) No, the good of 50% plus one of the people is served. Not quite the same thing.
2) How is voting for self-interest any different from voting for the hated "special interests"? Isn't the individual about as special as an interest can possibly get?
Third, unrelated point: how can "too many" comments be coming from a guy who hasn't submitted a comment in 16 hours or so?
Susan said:
"Q1 GDP Revisions: Revised down to 0.9% from 1.0%
Note -- I expect these revisions will get revised even lower in the future."
This is simply wrong. When the Q1 numbers were first released, real GDP growth was stated as 0.6%. It was later revised to 0.9% in May. It's also likely that the revised numbers in a couple of months will show Q2 growth to be very close to the predictions of 2.3% (some media outlets are saying 2.4%, whatever). Even so, it is very important to understand that whatever the predictions, 2% is a solid growth rate, good even.
Lane asked: "Is that 1.9% adjusted for inflation?"
Yes.
Whoa there, where did that come from? It sounds like you're talking about economic theory and rational self-maximizer and such. Markets, not politics.
Voters definitely do not vote "their own best interests", much to the rage of both parties. Many of the poor continue to piss of Democrats by voting Republican, despite the Democrats assuring them that all the tax cuts will go to the ultra-rich and all the benefits to you, the poor. Meanwhile, many of the most educated and wealthy vote Democrat, because their liberal education has convinced them that the social programs advocated by the Democrats are vital to supporting a healthy society, not just me-my-individual funds.
Yes, there are plenty of cases of "politician says 'I give you jobs!' and voter picks him", but in general I believe most people view themselves to be deciding "Who would be the best President for this country?" - albeit with a staggeringly insufficient amount of information to make that decision (myself included, no elitism here)
The dominant factor generating GDP growth in the first half was weak imports. So you think that consumers being unable to afford imports -- especially of energy -- is a reason for Obama to change his campaign. Once you get beyond GDP number
the data just continues to show the complete failure of Republican trickle down economics.
For example, real gross domestic purchases rose at a 0.1% rate, a big improvement from the -0.1% drop in the first quarter. Along with this the deflator for gross domestic purchases rose at a 4.3% rate in the second quarter. Except for the third quarter of 2005 this was the highest inflation reported in five years.
Now, explain why you think this is such good news for the republicans.
"1.9% is cause for exultant celebration in a lot of European finance ministries"
Sure, but lot's of European countries have stagnant populations (and I think often more ageing) so growth of 1.9% is solid growth per capita while with America, and it's growing (and perhaps less ageing) population, 1.9% is not so hot. This doesn't say that the resilience isn't impressive, assuming the first release figures are accurate - a big if given the other datapoints, but in general I think its a bit unfair to compare European and US headline GDP growth figures.
If only the average American could hear about this! Then they would realize that the economy is doing just fine.
The good news is that, while the economy is not in fantastic shape, the recession that left leaning types have been crowing about has simply failed to arrive.
When everybody is saying 'we're in a recession' and the actual truth is 'no, actually we're not', that sounds like good news to me.
If voters vote their own best interests, our lack of robust European-style social programs must be because they're not in most voters' best interest. Once you embrace vox populi, vox Dei, you're pretty much bound to applaud whatever happens.
Brad DeLong thinks you're way off base here. Would you please explain why you're right and Brad isn't?
http://delong.typepad.com/sdj/2008/07/ummm-no.html
Brad DeLong thinks you're way off base here. Would you please explain why you're right and Brad isn't?
http://delong.typepad.com/sdj/2008/07/ummm-no.html
"Is that 1.9% adjusted for inflation?"
Yes, but almost certainly by a low-ball estimate.
The best calculation of inflation is the time-averaged headline inflation. Since you can't include the future in your time averaging, recent economic data always use "core inflation" which excludes volatile elements like energy and food costs and usually does a good job of estimating time-averaged headline inflation. It works because those items vary quickly in price and make nonsense out of data that can be used to view long-term trends. However, we're not just experiencing volatility in oil prices. The bulk of the price increases we've seen will be with us for the long term. These are being ignored by the short term inflation calculation. For the time being, while headline inflation is certainly higher than "real" inflation, it is probably a better guess than core inflation.
Looking at the numbers, the growth in last quarter was calculated assuming a core inflation rate of 2.5%, while headline inflation was 7.9% (both rates annuallized). There is a very real possibility that the 1.9% growth Megan is crowing about will soon be seen to be much, much less. Looking at 5-year moving averages of headline inflation, core inflation has low-balled the estimate by a margin of more than 0.5% and growing. It is a near certainty that in a few years the growth for this last quarter will be seen to be less than 1.2%.
I'm not sure many European Finance Ministries would exultantly celebrate over 1.9% since most of them are topping that number, at least according to these figures: http://en.wikipedia.org/wiki/Economy_of_the_European_Union#Economic_growth
Besides, even if you were right and these were good numbers for European economies, they are still bad numbers for the US economy. Seems that if you don't like comparing apples to apples (US to US) because the current apple is a bad one, your strategy is to try comparing apples to oranges (US to EU) and see if you can get a better image out there. Too bad oranges seem to be doing pretty well this year.
I used to like reading you a lot. I keeping stopping by again in hopes of finding the old Megan. I was very disappointed to find this stupid crap instead.
I don't get the impression you actually believe this. It seems more like you're trying to convince the Republicans of your loyalty or something.
Real gross domestic purchases aren't growing. Employment isn't growing. The population is growing. I thought economics was supposed to be your strength, but you seem stuck on a high-school government textbook description of a recession.
Below trend growth is bad. People are right to be disappointed in the economy's performance, especially for the typical American. Political leaders are right to work on ways to try to restore us to growth in line with long-term productivity growth.
That's my opinion. I'm perplexed that it's not yours.
1.1% inflation is sketchy.
You say you're a frequent reader of her blog, but then make a statement like this... Don't you think think the many posts where she complains about McCain and says she's gonna vote for Obama kinda rules out her loyalty to the Republican party?
Not everyone who can tell the difference between positive growth and negative growth is a Republican.
I don't understand why Obama and his team would be doing some serious rethinking. Voters are very worried about the economy - growth has slowed and inflation is rising.
Why should Obama's team rethink? By a 10-point margin voters trust his judgment on the economy over McCain's.
You shouldn't just say stuff like that as if the answer is self-evident.
Is that 1.9% adjusted for inflation?
Posted by Lane Honda
Yeah and where would it be without the $500,000,000,000 of extra spending over reciepts?
Wow, look at us the cup is one third full!!! Of course it's all back wash but 1/3 full!!!!
And, "Barack Obama's campaign team is probably doing some serious rethinking this morning."
LOL! I sure hope not.
Brendan wrote:
“… you seem stuck on a high-school government textbook description of a recession.”
- and -
“Below trend growth is bad.”
Actually, Brendan, that would be “graduate-level economics textbook,” and certainly you’d have to agree that there’s utility in tracking whether the macro-economy, in fact, is expanding or contracting – irrespective of the anxiety/pain people might be feeling – wouldn’t you? Maybe it would be nice, additionally, to have a sense of that anxiety through some other measure – call it, “Consumer Confidence,” perhaps. But having a solid sense of macro-level expansion/contraction – and a well-defined concept signaling both – is to everyone’s benefit… (except in an election year, of course).
And regarding the “below trend growth is bad” observation, “trend” – by definition – includes both growth above and growth below. (If you figure out a way to dispense with the business cycle, there’s a committee in Sweden that would like to talk to you.)
Clearly, we are suffering href="http://www.scrivener.net/2008/07/its-worst-not-quite-recession-since.html"> the Worst "Not Quite A Recession" since the Great Depression.
Re. the above link mess.
1) I previewed it and the link was fine.
2) Then I got "blocked -- you've submitted too many comments, try later" about six times over two hours, even though I hadn't submitted any.
3) Then it finally posted that link mess in spite of an OK preview.
And oh, yeah...
4) For all the times I've checked that box, "remember personal info?" it never has once and I have to re-enter it all every time.
Brandon -
I expect graduate level economics analysis from Megan. I don't see any evidence of it in this post. We appear to be in a nearly year long period where actual economic output is falling behind potential. I think that this (and not "two consecutive quarters of negative growth") is the defining characteristic of recession. This GDP report confirms that potential and actual output continue to diverge, and yet she seems to think it's proof that we're not in recession. It's a topic in her wheelhouse and she puts together a few flip sentences underpinned by a simplistic theory of recessions. I was disappointed. Maybe in the future, I should just bite my tongue.
Also, an apology. I might have been mistaken in using below-trend growth as a shorthand for growth below the increase in potential output. I thought the two were interchangeable since productivity growth and population growth (the two factors that cause potential to growth) are steady enough to form a predictable trend, but I'm not an economist. If it caused confusion, the error is mine.
the recession that left leaning types have been crowing about has simply failed to arrive.
Let me try this again, new day, new month:
Clearly, we can all agree at least that it's the Worst "Not Quite A Recession" since the Great Depression.
"I know I saw that recession around here somewhere . . . "
It's just behind the piles of federal and consumer debt and in front of the subprime housing mortgage meltdown. Just look a little better and I'm sure you'll find it.
"I know I saw that recession around here somewhere . . . "
It's just behind the piles of federal and consumer debt and in front of the subprime housing mortgage meltdown. Just look a little better and I'm sure you'll find it.