The Economy
Pessimism about the economy is rampant, but baffling. From 30,000 feet, the US economy looks fabulous. In October, household employment rose to 142.6 million, an all-time record high. Lately, initial claims have fallen back to pre-Katrina levels of about 320,000 per week, roughly 2.2% of total employment, a percentage not seen since the late 1990s. Despite hurricanes and record high energy prices, personal income, wages and salaries, consumption of non-durable goods and services hit all time record highs in September. In recent months, corporate profits, federal tax receipts, the 6-month moving average of durable goods new orders, and household wealth have also climbed to record highs. Since the tax cuts of 2003, US real GDP has grown 4.0% at an annual rate, and has experienced no quarter with less than 3.3% growth. For reference, the 50-year average growth rate of real GDP is 3.3% and economists surveyed by the Wall Street Journal expect real GDP to grow 3.3% in 2006.This is my basic sense as well. While high energy prices are somewhat troubling (having purchased heating oil last week I can personally attest to this) they are not so high from a historic perspective to severely damage the economy. Other indicators seem great as well. Where does the pessimism come from then? (via The Skeptical Optomist)
posted by Dave Justus | 11/16/2005 12:05:00 PM
6 Comments:
There does seem to be a disconnect between the poll ratings and the numbers, but I think it reflects the fact that the GDP figures don't take distribution into account and economic insecurity. The former means that even if the GDP or national aggregate income goes up, a lot of people aren't doing that well. The latter means that people feel like they could lose their jobs, don't have/can't afford/are in danger of losing their health insurance, aren't secure in their retirements, and/or are concerned about the retirement options/health care issues as regards their parents.
Rising GDP is indispensable to addressing these problems, and we should pursue policies that keep us on this course. But it's not sufficient if what you want is to address economic insecurities that people feel.
I agree that insecurity is a big aspect of this, I am less concerned about distribution being a problem although it is something I am keeping an eye on.
Change is certainly happening faster and faster and that leads to a certain amount of insecurity. While we can try to address that in some ways, to a certain extent I think it is something that people are just going to have to become accustomed to.
I worry greatly though about policies that would exchange GDP growth for trying to deal with peoples fears about security. I expect that any such exchange would be self-defeating.
Incidentally, not all of the stats from your original post are that impressive. I'm not talking about GDP growth or unemployment -- by historic measures, those are doing quite well. But almost all of the "all-time highs" cited (for household employment, personal income, etc.) are a little bit misleading because it is the norm in the post-world war two economy to have both population growth and economic growth, which means that those kind of things naturally hit all-time highs on an ongoing basis, with the only exceptions being if we are in recession.
Sure, but the question remains, why are we seeing recession type confidence we we are not in a recession?
Note from the article that this low confidence isn't just workers either, it includes analysts and investors as well. Wealth distribution and economic insecurity shouldn't be playing into that too much.
Anemic returns on investment funds, outsourcing fears (it's not just for low-income workers anymore), increasingly expensive health care premiums, deductibles & co-pays, bubbly but still unaffordable housing prices ...
I think the way the media frames the debate has something to do with it. It could be bias, or it could be human nature to think both bad and good times linger longer than they actually do.
The bias theory can be tested the next time there is a recession with a Democrat in the White House.
I'll reiterate my call for major policies to be framed with predictions for their results. For example, a change to the income tax rates should posit revenues collected under improving, worsening, and consistent economic situations.
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