Summary: The Internet can make us smarter — or dumber. Google “Dude, where’s my recession” for a splendid example. Thousands of hits for what might be the dumbest tagline of 2008. This post discusses why accurate economic forecasting is so difficult, what we know about current conditions, and recent warnings from one of our top economists.
A follow-up post replies to points raised in the comments: When did “Dude” predict a recession? How severe?
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Economic statistics work for us like the whiskers on a cat. As we move into the unknown future, they hint at what lies ahead. Almost all US economic numbers have decelerated over the past 2 or 3 quarters. This is a clear warning signal, but useful only if people act on it. Build savings. Be careful when starting new projects or switching jobs. Carefully watch the risk in their households’ balance sheets.
Nobody can say what comes next — economic science is immature, the data too poor — but ignoring the data is imprudent, even foolish. Those who write commentary that casually dismiss this data do a disservice to their readers. The ‘where is my recession, dude’ meme is not funny, and imo actively harmful. The web gurus who propagate this reenact the story of the grasshopper and the ant, acting as cheerleaders for the grasshopper. Most Americans are not adequately prepared for a downturn, so this cheerleading could have unpleasant consequences for some of their readers.
What we know about the US economy
The consensus forecast of economists, as measured by services such as the Blue Chip Financial Forecasts, rarely successfully forecast a recession. So what do we know?
I. The economy very seldom rolls over quickly, except from an external shock (e.g., the 1973 oil embargo). The US economy is a $13 trillion ship. It turns slowly.
II. US recessions are defined by the National Bureau of Economic Research (NBER) as follows:
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. … Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them.
… Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, “a significant decline in economic activity.” Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.
III. Almost every US economic indicator is now in well off its peak, in slow decline, and entering typical recessionary or pre-recessionary levels.
IV. We might be in a recession right now and not know it. A recession typically means that GDP declines by 2% (more or less) per year. We can no more detect that by our personal experience than we can sense a slow 2% change in the air temperature. These things are visible only in the macroeconomic data.
V. Since the “real time” economic data is hideously unreliable (subject to large revisions many months later), recessions are determined well after the fact. Most current economic numbers (before revisions) are unreliable for three reasons.
- We have a large, complex, and constantly evolving economy — all of which make it difficult to measure.
- Most economic metrics are abstractions. Measuring GDP, personal income, or inflation is not like counting apples.
- The government statistical apparatus is grossly underfunded. We get the economic statistics we pay for.
Update: who started this nonsense?
The Instapundit says that the “Dude, where’s my recession” line was coined by James Pethokoukis, the money and politics blogger for U.S. News & World Report. Here is an example of his reasoning, an excerpt from “The Strangest Recession in Economic History” (29 May 2008):
What do you call a recession where the economy keeps going up and up, even if a bit sluggishly? Well, my friends, you call that an expansion. And that is what we seem to have right now, despite all the economic doomsaying about a recession or even a Great Depression 2.0. Today, the Commerce Department revised its first-quarter estimate of gross domestic product upward to 0.9% from 0.6%. That follows 0.6% GDP growth in the final quarter of 2007. The revision also makes it more likely that the second quarter will be positive, maybe 1.5%, maybe even higher.
Now I went back and checked the numbers for the past 50 years and didn’t find a single case of a recession – as calculated by the National Bureau of Economic Research – that started with or contained two straight quarters of positive GDP growth, much less three quarters.
… No one is saying the economy is booming. Clearly, we are in the midst of dramatic slowdown.
In hindsight you sometimes call it “a recession that just started.” Real Q2 GDP might easily be negative. Most economists have only recently come to expect a serious slowdown, starting in Q1 or Q2. There are always outliers on each side of the consensus — some predicting booms, some predicting busts — as everyone struggles with the ambiguities of the data and trends. There is no basis for Pethokoukis’ to talk as if he is a truth-teller, someone external or superior to this analytical process.
(1) As Feldstein notes below, GDP numbers represent the average level of economic activity during a quarter. The slowdown might have accellerated late in the first quarter, which would be consistent with the current data — and become even more consistent if the numbers are revised down.
(2) Guesses about Q2 GDP are no more than that. We have some reliable data on April, a little on May, and almost nothing on June.
(3) We will remain uncertain about Q2 results for several months after the end of Q2. Indicators tend to be revised down — often far down — during recessionary periods.
(4) Pethokoukis’ appears to have great confidence about his forecasting ability. It is probably unwarranted. History shows that recessions are seldom visible until we are in them, which is why consensus economist forecasts seldom expect a recessions even as we are sliding into one.
Where is the economy now in the business cycle?
There are many economists who have accurately forecast this slowdown. Here are two articles by Martin Feldstein, President of NBER, explaining what we know. Since NBER defines the cycle, we should listen to this man.
“Our Economic Dilemma“, Wall Street Journal (20 February 2008) — Excerpt:
Although it is too soon to tell whether the United States has entered a recession, there is mounting evidence that a recession has in fact begun. Key measures of economic activity stopped growing in December and January or actually began to decline. The collapse of house prices and the crisis in the credit markets continue to depress the real economy.
The sharp reduction in the federal funds interest rate and the new fiscal stimulus package may, of course, be enough to avert a downturn. Many forecasters still predict that the economy will just slow in the first part of this year and then rebound after the summer. But the hope that monetary and fiscal policies would prevent continued weakness by boosting consumer confidence was derailed by the recent report that consumer confidence in January collapsed to the lowest level since 1992.
If a recession does occur, it could last longer and be more painful than the past several downturns because of differences in its origin and character. The recessions that began in 1991 and 2001 lasted only eight months from the start of the downturn until the beginning of the recovery. Even the deeper recession of 1981 lasted only 16 months.
More recently he sounded another alarm.
“Misleading growth statistics give false comfort“, Financial Times (7 May 2008) — Excerpt:
Prepositions matter. The recent government report that US gross domestic product increased 0.6 per cent in the first quarter was very misleading. It implied that economic activity was rising in January, February and March. But the increase actually refers to the rise from the average level in the fourth quarter of 2007 to the average level in the first quarter. Monthly data since January indicate that economic activity and GDP have been declining since the start of this year.
Private sector payroll employment peaked last November and has fallen five months in a row, shedding more than 300,000 jobs. Industrial production was lower in March than in December and January. Real personal income net of taxes and transfers is also lower than in January. Real retail sales have fallen since the start of the year. Private housing starts are down 13 per cent in just the two months since January and 36 per cent from a year ago.
Although the government does not provide monthly estimates of GDP, Macroeconomic Advisers, a private forecaster, constructs them using the same conceptual approach as the government uses for its quarterly estimates. The company estimates real GDP based on the price level of the year 2000. Its most recent estimates (revised figures to be published this month) show that real GDP rose from an annual $11,649bn last October to $11,701bn in December and $11,777bn in January but fell to $11,686bn in March, a decline of about $100bn in two months. Although GDP declined during the first quarter, the average of the monthly figures in the first quarter ($11,711bn) is higher than the average of the monthly figures for the final quarter of 2007 ($11,675bn).
The misstatement that the economy expanded in the first quarter creates an inappropriately sanguine view of the months ahead and therefore reduces the prospect of strong action to prevent the deep decline that may otherwise occur. Carlos Gutierrez, the commerce secretary, whose department produces the GDP estimates, said the 0.6 per cent increase supported the administration’s view that growth would be slower but positive in the first half. The administration predicts that after this slowdown the economy will grow more rapidly in the second half and in 2009.
Although the tax rebates now under way may provide some temporary help, the combination of falling real incomes, declining household wealth and a dramatic drop in consumer confidence suggests further falls in consumer spending and GDP. But the most serious risk is that the rapid fall in house prices – down more than 12 per cent in the past year and falling at a 25 per cent rate in the past three months – will raise the number of negative-equity mortgages, leading to widespread defaults and foreclosures.
Other posts about the Internet: does it make us smarter or dumber?
- Cable Cut Fever grips the conspiracy-hungry fringes of the web (7 February 2008)
- Resolution of the Great Submarine Cable Crisis — and some lessons learned (8 February 2008)
- What do blogs do for America? (26 February)
- The oddity of reports about the Iraq War (13 March 2008)
- Euphoria about the Bakken Formation (10 April 2008)
- The Internet makes us dumber: the Bakken euphoria, a case study (15 April 2008)
For more information about geopolitical implications of current economic trends
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A brief note on the US Dollar. Is this like August 1914? (8 November 2007) — How the current situation is as unstable financially as was Europe geopolitically in early 1914.
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The post-WWII geopolitical regime is dying. Chapter One (21 November 2007) — Why the current geopolitical order is unstable, describing the policy choices that brought us here.
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We have been warned. Death of the post-WWII geopolitical regime, Chapter II (28 November 2007) — A long list of the warnings we have ignored, from individual experts and major financial institutions (links included).
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Diagnosing the eagle, chapter I — the housing bust (6 December 2007) — What the housing bust shows about America’s fitness to survive.
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Death of the post-WWII geopolitical regime, III – death by debt (8 January 2008) – Origins of the long economic expansion from 1982 to 2006; why the down cycle will be so severe.
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Geopolitical implications of the current economic downturn (24 January 2008) – How will this recession end? With re-balancing of the global economy, so that the US goods and services are again competitive. No more trade deficit, and we can pay out debts.
- A happy ending to the current economic recession (12 February 2008) – The political actions which might end this downturn, and their long-term implications.
- What will America look like after this recession? (18 March 208) — More forecasts. The recession might change so many things, from the distribution of wealth within the US to the ranking of global powers.
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The most important story in this week’s newspapers (22 May 2008) — How solvent is the US government? They report the facts to us every year.
To see the all posts on this subject, go to the archive for The End of the Post-WWII Geopolitical Regime.
This sounds like an indirect slam on the Instapundit’s glib one-liners about economics.
How do you cover so much ground, Fabius? You are a veritable thinking machine!
I wouldnt lay the blame for stupid optimism (or pessimism) solely on the blogosphere. the desire to paint a comforting picture of the economy starts at the top (in government.) Government always has to project a positive image otherwise it will lose legitimacy. Then there are the pundits and news commentators, who make their living by echoing and embellishing government positions. We’re not that far removed from the priest-dominated societies of the past.
In these circumstances, an intelligent person isn’t totally misguided in simply believing the opposite of everything the government and “experts” say.
“This sounds like an indirect slam on the Instapundit’s glib one-liners about economics.”
Is there anything which Instapundit *can’t* issue a glib one-liner about?
Your comment on the economy turning slowly is very accurate and cuts both ways. Something to consider is that if (when) we officially recognize that we are in a recession it will take quite a while to get back out again.
Remember the so-called “short” recession of 2001? Supposedly we were only in it for 6 months but it took 2-1/2 years for the stock market to stop dropping and we only recently matched the pre-recession job numbers. I suspect the next recession will be very similar only, perhaps, more painful.
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Fabius Maximus replies: Agreed! This is a result of debt accumlated in the US, mostly by households and businesses, since 1982. As we increase the amount of debt, our recoveries become more sluggish. When we reach the maximum carrying capacity of debt, the Fed will be unable to stimulate the economy. We will have to recover “naturally” or “oganically.” That will be slow and long. I believe we are near that point.
I discuss this in my 8 January 2008 post: “Death of the post-WWII geopolitical regime – death by debt“.
As you note, the U.S. economy is a complex system. In this system, at *all* times, some areas experience growth while other sectors decline. Why are we then obsessed with reducing these complexities into a single, unnuanced binary status indicator of economic health (“Recession” or “Expansion”)? One word: Politics. A “recession” label provides powerful ammunition against the incumbent administration, who, it is assumed, has some control over the health of the economy. This ammunition is powerful because it provides a scapegoat for individual financial situations, which, in a consumer-driven culture, are never solvent enough. So in a “recession” people grow angry with the incumbent despite the fact that the effect on the average person of a fractional change in GDP growth is likely insignificant.
Given the political motivations, it’s no surprise that everyone argues over which reductionist category describes our current economy.
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Fabious Maximus replies: I disagree, and reply with two words: “economic management.” Since the Great Depression, the US government has had two objectives with respect to the economy: avoid inflation and maintain, to the degree possible, full employment.
We cannot manage what we cannot track, hence the creation and attention to two metrics: core CPI and GDP.
Core CPI excludes food and energy not because the government’s statisticians are stupid (they are not; probably they are smarter than 99% of their critics) — but because the government cannot control commodity prices. There is not point targeting what you cannot control.
GDP is a purely and narrowly material metric, excluding measure of human happiness, because the government cannot make people happy.
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It seems obvious to me, but clearly not to everyone:
The point of that tagline is that the MSM and a lot of lefties are slavering, hoping, pining, praying for there to be a recession RIGHT FREAKIN’ NOW, so that they can try to hang that around McCain’s neck. Should a recession become manifest only in December, it does them no good.
There is no search for truth whatsoever going on; it’s entirely a political exercise by untrustworthy people, and it’s completely transparent. THAT is why we keep hearing the sarcastic and mocking “Dude, where’s my recession?”.
Regardless of the current state of the economy, should Obama be elected, you can be sure there will be no mention of recession for 4 years, unless we enter an actual depression and it becomes unmistakable. Given his intended tax policies, there’s a decent chance of that.
All you city-dwelling successful young singles who are dreaming of an Obama presidency will be in a 60+% tax bracket; I trust the “hope” and “change” will be worth it.
Frankly, given the gigantic headwinds we are fighting, it’s astonishing that the economy has held up as well as it has. If we ever actually get to drill for oil in this country, or build some nukes, we could take off like a shot.
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Fabius Maximus replies: I have no objections when stated like that, and agree with most of this.
I had a section, deleted to keep the post short/focused, about the media coverage of the economy. Since personal experience tells us little — per my analogy with daily temp swings — most of us rely on the media. They can take the data flow and cherry pick bits to present almost any picture they want. Add in human interest stories (always available for reporters in any desired flavor), and presto: a story giving the desired picture.
The classic is Bush Sr being mocked for saying during the 1992 election that the 1991 recession was over, when in fact it was over.
We have all the signs of a typical Austrian boom cycle due to monetary inflation. We had that in 1999 and the proper action at that time would have been to NOT inflate more. According to Austrian theory monetary inflation distorts the economy by causing a misallocation of resources into long term projects instead of short term ones.
In response to the correction of 1999-2000 Greenspan inflated more and extended the boom into other sectors of the economy such as housing. m Yes housing is a long term project just like computer software, it’s far away from consumption. Austrians have always stated that inflating the money supply is exactly the worst thing you can do to correct a recession as it delays the readjustment and can lead to a crack-up boom or something in between.
All the signs of early stages of monetary inflation are here and only recently gone. 1) Increases in commodities prices which rise faster than consumer prices initially. 2) Trade deficits. 3) High stock prices, and yes they are still high price earnings wise 4) Misallocation of resources to sectors of the economy where the money is being injected first and to areas involving long term projects. 5) The money supply has been increased. 6) Easy credit. 7) Tulip mania (this time in housing).
Yes, I said early stages. These things can take a very long time to play out. Especially when your currency is the base currency being used as reserves for most others. Also especially when many foriegn countries are switching from socialist to capitalist policies which is price deflationary, for them, and us.
Price deflation and monetary deflation are different beasts just like price inflation is a different beast than monetary inflation. The forces pushing in the direction of price deflation, technology advancements and world trade, of the 1920s was not something the Fed understood as a good thing and used monetary inflation to correct. Price stability being the goal. This was a big mistake, that caused misallocation of resources away from consumptive goods and overinvestment in capital goods. We were and are essentially experiencing the the same thing with the opening up of foreign markets to capitalism today. Except not the distortion is running cross border instead of inside the country.
This all, sucks to say the very least and will eventually lead to very bad reprecussions. We will be experiencing consumer inflation, stagflation and the like. It’s just a matter of when. Our government is already understating consumer inflation by severs percentage points at least. Things are going to get worse. Sorry but all the signs point that way.
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Fabius Maximus replies: I agree with some of this, and will have a post next week about inflation (this description is not quite right, imo – but off-topic here).
(1) It is not clear that the official CPI understates inflation. Basics are going up in price. Many descrtionary goods are going down (e.g., cars).
(2) As many economists have written, most recently Paul Krugman (“A Return of That ’70s Show?“), current conditions in the US make stagflation unlikely (high productivity, low wage growth – both opposite of the 1970’s).
Fabius, Glenn is taking a swipe at the MSM and NOT making a statement regarding the process of accurate economic forecasting. If you are going to slam someone’s opinion, at least understand the basics of it. — RR
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Fabius Maximus replies: (1) I am interested in the effect of Pethokoukis’ words — not their intent.
(2) This effect is magnified as others repeat this tagline, often providing little or no context. This is, imo, true of many or most of the Instapundit’s comments.
(3) Whatever Pethokoukis’ intent when he first wrote that tagline, there is no sign of it in the article I quoted. That is a straightforward positive forecast about the economy.
I’m not a deep believer in Paul Krugman’s theories. He’s been wrong during the entire period of reflation of credit. There are factors in place that I didn’t mention such as foreign cash holdings that are going to make this stagflation arrive quite unexpectedly if you use other economic theories. Did I forget to mention the weak dollar in my list? Yeah. Bunch of other things too, like savings rates, etc. All these are bad signs that fit in with Austrian theory of what monetary inflation causes.
The monetary inflation has been hidden in part by a pooling of cash overseas. At some point, and it can take a very long time, foreigners are going to fully notice that these cash holdings are loosing them money big time. As that money flows back into the US it will add to local levels of price inflation. We will experience that as rising prices on all those foreign produced goods because they will get sick of us “printing paper” to trade for real goods.
If you think that the weak dollar is going to shift the trade balance over to the US then think about this, it isn’t working very well is it? Despite the very weak dollar for a long time we have not seen the trade deficit correct. That’s a very bad sign. Sure we will see a tendency of more buying of US goods by foreigners but it just hasn’t been enough. When it does happen well guess what? It’s extremely inflationary. So who needs Paul Krugman’s nonsense about unions raising wages?
This isn’t the 1970’s. Industry has moved overseas to a large extent. Krugman doesn’t get the big picture. Neither did Greenspan.
In order to turn around the trade deficit we need to see foreigners buying our goods and the longer that takes the more cash they are going to have to push up consumer prices here. Companies that start making profits because of this (it won’t be the same companies that have been bloated by the monetary inflation caused by low interest rates, real estate, construction, etc.) will start bidding up salaries, but most of the consumer price competition will come from overseas. They will be buying our food, etc.
Capitalism is quite robust. So just as long as the government doesn’t make extremely bad moves like it did in the 1930’s we will eventually get a correction. Stagflation could be averted merely by letting interest levels rise ala Volker. I’m betting those actions will not be taken as they punish Americans for their following the bad incentives set up but the government and reward foreigners. Foreigners don’t vote.
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Fabius Maximus replies: This is getting off-topic, and I prefer to keep comments focused, as I say in the text. The post was about a specific tagline, and its effect on Americans. The broader economic issues are beyond the scope of these brief comments.
BTW, I took a vacation day to garden and the weather forcast got it wrong. It’s raining here on Long Island, not cloudy. So I had some time to comment. I expanded my gardening, increased my beds from around 200 square feet to 1800, and switched from mostly flowers to veggies. I will be canning some of my own food. Why? Because I expect food prices to go up from here. Also because it takes resources like fences to start up and they are cheaper now than they will when we actually see the consumer inflation I’m predicting. I’m putting my money where my mouth is.
BTW, {snip — discussions about investing are outside the range of this site. There are thousands of sites devoted to investing. This site is about geopolitics.}
Fabius Maximus replies: please comment only on the subject at hand. This is not an open forum discussion on the US economy. Last warning.
Interesting comments. The falling dollar DOES mean that China’s USD hoard, for example, is worth less for the purposes of buying stuff. But the first order effect, for China, was to provide employment to Chinese peasants transitioning to a crony capitalist National Communist kind of fascism. The US gets really really cheap T-shirts and plastic junk, but sends over really cheap US paper.
The falling dollar also means the stupid sub-prime / liar’s loan providers won’t lose as much as they deserve to, but the overall US economy won’t correct/suffer as much, either. Both Clinton’s dot.com bubble and Bush’s housing bubble including “overemployment” — probably whenever the unemployment rate was less than 5%.
Oil is going to be priced in Euros soon, but the replacement of the USD with EUR as a world reserve currency will be slower.
The effect of the current MSM / Krugman Gloom, Doom, and even Gloomier is to
a) support Dems in blaming Bush and now Bush+McCain for all problems, and
b) creating false expectations about what the US President can do to influence the US economy in the short term.
Both of these effects are far, far worse than the counter-acting effect of the cutesy “Dude, where’s my recession” — which I kinda like.
Let’s see, since Bush’s tax cuts in 2001, Krugman and the MSM have predicted 6 annual recessions/ terrible economies, and only now are they getting a BIG slowdown. It looks to me like it would be a recession (negative GDP growth) without the interest rate cuts, but the inflationary money pumping and USD devaluation will save most banks and improve the US exports.
Finally, if it IS a recession now (after the Dems were elected in 2006 to dominate Congress, the gov’t pillar with the most influence on fiscal policy), the effect will be to elect Obama. And that will likely be a high-tax, high-spending, small growth followed by big decline econ disaster.
Can’t the US sell a few billion USD worth of nuke power plants to India?
Fabius Maximus replies: Most of these statements are guesses. Some I agree with; some I do not. I doubt Krugman and the MSM have predicted 6 annual recessions since 2001.
umm, sorry if the above was too wide ranging.
Fabius Maximus replies: Not a problem. Every site runs differently. There are open discussion forums; then there are sites like this that have focused discussions. I have added a headline to the post about the comment policy for folks new to this site.
Fabius, I would ask if you consider it fair to listen in to a few minutes of the middle of a conversation and then try to paint the whole conversation as saying something it didn’t based what was said only in those few minutes? Context is everything and in effect that is what you have done with Glenn’s comments by not being familiar with his context.
Words have meanings and many people are trying to use them in incorrect ways in order to advance their political agenda. While your use of the NBER definition of a recession is certainly correct, it is not the one that most people think of. Most people think of a recession as starting with two quarters of negative growth which we have not yet had in this current economic cycle and so the derisive comment of “Dude, where’s my recession.” Now we may well fall into recession, or we may continue bumping along with an economy that is barely holding even, but that is unknown to us and so far the economy has not fallen into what dictionaries and most people consider a recession. In the meantime I suggest you study up on sarcasm. You have apparently missed the point of Glenn’s and others use of the term.
Fabius Maximus replies: If Pethokoukis believed his post to be misleading if read by itself, he should have said so. He is a professional and should be held to some standards when reporting on such important topics. I suspect he meant just what he said, and did not intend this as a comment on the MSM’s political intent. This is the problem with weighing “intent.” We can only guess.
You attribute intent to the MSM’s reporting on the economy and Pethokoukis’ articles, and consider that the a factor. Fine, but I prefer to view such things in terms of accuracy and impact. I do not claim my viewpoint is superior to yours; please do me the same courtesy.
My point about the “2 qtrs of – GDP” belief is that it is …
(1) Wrong — look at the damage done in the 2001-02 period, but no 2 sequential qtrs of down GDP. That many folks have this misconception does not mean that I should share it.
(2) Hopelessly backwards looking. Encouraging people not to prepare until we have falling GDP is terrible advice, whether explicit or implicit.
I may have missed Glenn’s use of sarcasm — that would not be the first time!
Take a look at April and May car sales and the MSM reporting on them” “WAY DOWN – ECONOMIC DISASTER LOOMS”.
The look at the actual figures in units sold. You find that virtually EVERY small and smaller midsize cars reached records – especially in May. The compacts like Civic Corolla, Focus, etc all reported their best May in history. The newer, smaller models like Yaris and Fit had even larger increases. The midsize segment like Camry, Accord, Fusion, etc. all reported shining results. Ford and GM have had to add shifts to their Focus and Cobalt factories. Honda had to shift some employees from SUV/truck production to autos production.
The DOWN part was simply difference in cost from expensive SUVS to cars.
The above is important because autos, of any size, are not cheap. Most people take on debt to acquire one, whether through a loan or lease. People generally take on debt when they are somewhat confident of paying that debt; aka job security and steady income. The unit numbers reflected in May U.S. car sales indicate that comfort level – despite the constant MSM harangues of a recession.
It is possible to create a recession by continually pushing the recession story. All it takes is for ordinary people to curtail spending out of fear. So far the unit CAR sales figures indicate that Americans are not following the liberal MSM game plan.
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Fabius Maximus replies: I believe you have misread the data. Ford and GM have announced layoffs, with rumors of more to come. Also, even an equal numbers shift from trucks to cars would have a contractionary effect on the economy — as cars use less labor and materials than trucks.
Also, what is your point? The economy is not slowing down? Absurd. The economy is not in a recesion? Possible, but Feldstein and most other economists say that the trend in the data suggests otherwise. That the economy will not continue to slow? Everyone gets to guess about the future.
Update: for more on this see “When did “Dude” predict a recession? How severe?“
Most of this is Alan Greenspans fault but Bush does deserve some blame. After all he did pick some very expensive ways to deal with terrorism. I would have just dropped flyers on Saddam’s palaces to warn civilians before bombing each and every one to dust. Told him to stop working with terrorists and moved on to the next terror sponsor.
Fabius Maximus replies: Please, let’s stay on topic. This is not an open forum discussion about the US economy. Who’s fault, terrorism, the Iraq War — these are unrelated to anything in this post.
We may get a recession. We may not. But the media is already there big time. I think that’s the context, responding to media doomsayers that seem all too eager to jump the gun, albeit without any ideological motive of course and without a looming presidential election having anything to do with it. Today when I opened Google I saw three headlines predicting economic disaster. It’s like the media’s Katrina coverage all over again.
Fabius Maximus replies: These repeated assertions about the media, as if it is unitary entity, need some support. Rather than endless repeat this in the comments, why not give an example.
Also, no point in spitting in the wind about this. The media exists to sell advertising, so reports of babies picking flowers on a sunny day get little attention. “If it bleeds, it leads.”
If so many of you believe that there is a large audience of folks who prefer to read news with a different balance between good and bad, band together to start a newspaper. It requires little capital (note the large number of small locals). Your community and the nation have a wealth of unreported good news to fill your pages!
Update: for more on this see “When did “Dude” predict a recession? How severe?“
Two comments – first, there is a truism that economists have projected 11 of the last 3 recessions. It might be even higher for economists who work for the main stream media.
Second, in a post on Wednesday — “An economic conundrum” I wondered if we are in a recession why an upscale hamburger joint was doing such a land office business. There are some significant trouble spots in the economy – but the directionality is not all one way. Ronald Coase thought it was always a good idea to look at the real data – in the case of this “recession” that might be a very good idea.
Fabius Maximus replies: (1) As I note in this post, personal experience is useless to evaluate the tiny swings in the national economy represented by typical recessions.
(2) While it is a truism, this is not true. Most services tracking economists’ forecasts show that they — collectively — have seldom or never predicted a recession (corectly or not).
(3) I agree with your Wednesday post. The data is mixed, and a focus on the underlying trends is useful.
Update: for more on this see “When did “Dude” predict a recession? How severe?“
In hindsight you sometimes call it “a recession that just started.”
No, you call it “the last quarter before the recession.” It’s not enough to say “oh, we might have a recession” and then declare it is a recession. Whatever technical definition you adopt (two declining quarters or the more complicated one) it’s just not a recession until GDP declines. Similarly, it stops being a recession when GDP is growing again. Even in 2001. Even if it then takes some time before people feel better.
Fabius Maximus replies: “just not a recession until GDP declines” This is not correct. GDP is a complex and quirky animal. As stated above, NBER — reflecting consensus economic thinking about the business cycle — rely on a broader range of metrics.
In a consumer-led recession — which this might be the first such — jobs and incomes might decline before GDP.
There have been two camps on diagnosing the economy:
the US is going to end, or things are not as bad as you are being led to believe.
give Pethokoukis credit, he has been far more correct than buffet or greenspan, but with inflation at 4%, and unemployment shooting(to a still modest) 5.5%, the increase is hard to miss.
While we have heard the obsession about a ‘trillion’ dollar hit on the economy due to housing stumbles, it seems rather pale when compared to the 5 trillion dollar hit of the dot com bubble bursting in 2000. The difference is the the 5 trillion was absorbed by a broad base of 401k, while the recent hits have fallen on a smaller group, mostly comprised of ‘speculators’. The speculators gambled on either arms and/or purchases of additional houses based upon perceived equity in the previous acquistions.
(surely the congresswoman from California who walked away from a 600k mortgage on a 170k income is not alone in the fact that she also had two other properties)
Pethokoukis’ skepticism was in reagrd to housing bubble causing a recession – he was correct. Buffet and Greenspan were wrong.
Act II, which is high oil prices, is a new factor, and which may very well lead to a recession, but one cannot fault Pethokoukis for being correct in regards to housing not creating a recession, nor can one credit Greenspan or Buffet with the prediction of a recession, if it occurs becuase of oil and not housing.
Pethokoukis is entitled to revise his recession prediction, based upon new facts. Allowing the predictions of recession to be consdiered correct, when the assumptions were specifcally citing housing failures is not.
Fabius Maximus replies: I like your email address! In the “land of despair” there may two camps, with one of them being “the US is going to end.” But in this one, there is a wide specutrum of views with a very small number having such a pessimistic view.
As for housing not creating a recession, I believe it is far too early to say. The credit crunch started early last year, and the decline in home prices has just recently began to accellerate. The effects will be felt only several months after (if) real estate-related activity (e.g, construction, finance, etc) collapses to low levels and we see substantial numbers of bankruptcies.
Directionally we are seeing both these things, but cannot know how far they will go. As I said in this post, it is a big economy and takes time to change course.
Fabius you completely miss the point.
(1) You criticized Reynold’s sarcastic remark on the theory being accurate trumps all else. Yet you refuse to extend this simple principle to media coverage. If the media’s coverage is bordering on hysteria or even merely inaccurate, shouldn’t that be criticized as well? This is not about good news over bad news, but about truth over falsity, something you purport to champion. After all, you acknowledge that we cannot predict whether we are entering a recession or not. Is it therefore so outlandish to observe that the MSM is not approaching the issue with similar caution?
(2) As to your suggestion that media coverage has no impact on general perceptions, was Katrina too obvious an example for you? How about the Spanish American war while we are at it? Or maybe the Tet offensive? Unitary entity or not, how the media spins a story and what it chooses to focus on in the first instance effects our perceptions.
(3) That you are so thin-skinned about what seems an innocuous point brings into question your own objectivity.
Fabius Maximus replies: Lots of meat in here, so I will take it in sections.
(1) I do not believe that anything I have said disagrees with your comment, in theory. As I said in #17 above, ome evidence about the extent of this biased economic reporting (other than the usual tilt towards bad news) would be nice. Since I do not watch TV or read physical newspapers, I have little feel for this.
(2) I cannot find any comment of mine saying “that media coverage has no impact on general perceptions.” I did say in #7 “They {the media} can take the data flow and cherry pick bits to present almost any picture they want. Add in human interest stories (always available for reporters in any desired flavor), and presto: a story giving the desired picture.”
(3) ” you are so thin-skinned”
A supporting quote for this, please. People present views; we debate. Disagreement just means that we disagree.
(4) “brings into question your own objectivity.”
What objectivity? This is a blog, not CBS. I have a full load of biases, sterotypes, and opinions — and lay them out, at which you get to shoot “paper bullets of the mind.”
in fairness to Pethokoukis, a quote that should have been included from his article, following the excerpted piece:
“No one is saying the economy is booming. Clearly, we are in the midst of dramatic slowdown.”
In failing to mention that the author was expressing caution, the implication is made that he is wandering around as Pollyanna. The opiion conveyed in the article was that we are in a precarious time, but that we are not as bad off as many in the press would have one believe.
to borrow from Larry Kudlow, Obama needs a ‘goldilocks’ economy, where there exists an econmic downturn, but not where there is a full blown crisis. If the economy is on the ropes, and the number of americans who expressed their opinion of thing going well finacially(for themselves- at 68-70% favorable when Pethokoukis wrote his piece) is in rapid decline, the label of ‘Carter’s second term’ will be far more devastating than ‘Bush’s Third Term’.
High oil prices and rampant inflation would quickly replace any foreign policy considerations, but the country would be far less inclined to elect an affirmative action candiate with no experience, from a party that is synonymous with economic disaster.
If Obama remains committed to increasing tax rates, despite a stalled economy, he will lose in a landslide.
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Fabius Maximus replies: Thanks for catching this! Yes, I should have included this — and am adding it now. I try to keep excerpts of other’s material as brief as possible, but in this case it one sentance too few.
As for the economy and the election, in past presidential elections a recession was bad for the incumbant party. This time, with no Pres or VIP running, who knows?
I didn’t make myself clear enough for which I apologize. The sarcasm by Glenn and others was intended for those who started stating that we were in a recession approximately three quarters back. For examples of such statements, check out Goolsbee, Obama’s chief economic adviser, or Hillary Clinton. just to name two. There are also numerous candidates, columnists and pundits who have tried to claim the country is in recession for some time now.
The point is that while we may be entering a recession, or we may not, no one can yet say with any accuracy that the common understanding of a recession (A period of negative, real GDP growth, usually during two consecutive quarters) has been met at this time.
As for Pethokoukis’s comment, he may turn out to be right or wrong about the next quarter producing more growth than the preceding two. I never meant to imply that he did not believe his column was accurate and you have inferred something that was not intended owing to my lack of clarity.
Fabius Maximus replies: That is helpful detail! That politicos and their spear-carriers attack the incumbants party by painting dismal picture is, of course, standard procedure. Any corrections to their nonsense is valuable.
I do not read economic analysis by non-economists, and so have no idea — and less interest — in their forecasts. When reading news, the round file and delete keys are my best friends. This saves a lot of time.
As for not being clear, no need to apologize. I write — dash off at great speed — several thousand words a week on this site. God only knows how much it makes any sense.
Update:
A follow-up post replies to many of the points raised in the comments: “When did “Dude” predict a recession? How severe?”
The line is a play on Michael Moore’s book “Dude, Where’s My Country?” Nobody seems to have mentioned it. yours/peter.
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Fabius Maximus replies: Thanks, I did not know that!
Followup comment: Joshua Foust says “The Michael Moore book, Dude, Where’s My Country was an unsubtle send-up of the stoner movie, Dude, Where’s My Car starring that guy from That 70’s Show and the guy from American Pie.”
I can’t criticize you for ignoring non-economists take on the economy because I try to do the same and think it is an eminently sensible thing to do. However, since I follow the news fairly closely, I find that some of their prattling gets through anyway.
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Fabius Maximus replies: Agreed. In the 21st century wired world, developing “noise filters” to screen out information might be an important skill.