Pundit's Corner: The United States Economy

[malasadas.livejournal.com]

So the U.S. economy has been absorbing some really crummy news lately. The home market, which never really recovered from the bursting of the housing bubble, has had some of its worst showings in the past three years. U.S. factory output posted its first decline in 10 months this May, although experts tie much of that to the situation in Japan. U.S. consumer spending, a major driver of the American economy, rose but less than expected in May. The growth in American Gross Domestic Product is estimated at 1.8% in the first quarter of 2011 -- sharply down from the 4th quarter. And the big news last week was a private sector job market that added a measly 54,000 jobs in May -- much lower than expected and positively puny compared with recent months of more robust job growth and ticked unemployment up to 9.1%. Financial markets responded accordingly and this morning the Dow Jones Industrial Average opened below its 3 month average for the first time since early March.

To paraphrase Tom Lehrer -- people watching the U.S. economy for a living, particularly those in the White House, may be feeling a bit like "a Christian Scientist with appendicitis."

Since news like this is definitely the stuff of punditry, I have two questions for our August Assembly of Internet People:

1) How do you explain this string of unpleasant economic news two years into an "official recovery"?

and, to keep everyone honest:

2) How do you explain your explanation as NOT being a matter of personal confirmation bias and/or partisanship?

Edit to Add: Question 2 seems to be being viewed differently than I had intended, so I'm going to quote myself:

It isn't my intention to say that bias is altogether bad -- we all have them and partiality is a big part of how we process information.

But I do think that lots of us go in to these discussions not merely with prefered frames of analysis but preordained conclusions looking for opportunities to be expressed.

If folks are going to opine as pundits do on an admittedly troubling set of economic news, I am loading the questioning with something I don't often see asked on pundits and talking heads -- show your work. Explain how the conclusion is justified using warrants not just evidence.

Comments

[soliloquy76.livejournal.com]

1) It's obviously the result of Obama's socialist policies which are bringing us inches away from the destruction of our free market economy.

2) My mormon underpants told me so.

[anosognosia.livejournal.com]

Socialist? The essential problem with both the American economy and American attitudes about the economy is a wildly fetishized relation to capital. A bit of socialist savvy here would be awfully welcome.

[abomvubuso.livejournal.com]

The high unemployment rate and large amount of Americans still heavily in debt are two of the main causes for the slow pickup of the US economy. The high levels of federal debt and unemployment have had the experts worried for quite a while. Big business also complains that the increased regulations and rising commodity prices are also a concern.

Granted, after previous recessions, the general economy tends to boom, growing faster than historical average rates. But today’s news shows that this recovery aint typical and its continuation is increasingly in doubt. While 1 month hardly makes a trend, the coincidence of negative economic signals gives some evidence that the US economy may be slowing from its previously lackluster rates. In any case, it still has considerable "slack", and still more fiscal consolidation is necessary for economic recovery to be self-sustaining.

In a recent survey, economists predicted only 3% economic growth, taking into consideration the depth of the recession (http://truthfullending.com/this-is-no-normal-recession/). It was also noted that in 2011 there'll be "slower and less powerful than is typical improvement in labor market conditions that will cap gains in disposable personal income and personal consumption expenditures". However, not factored into the 2011 forecast is how the US economy will respond to rising oil prices as a result of the uproar in Libya. Economists warn that the unrest in the Mideast could further negatively impact consumer spending.

There's however a positive side as well. Most projections point towards an increase in the business spending for next year. A whopping double-digit growth through the end of 2011 wouldnt be surprising. Structure spending is expected to rise with 1.8 to 2.0%. Its still considered a weak growth but better than earlier forecasts which only said a 0.2% contraction.

There's still more (http://www.cnbc.com/id/42894153/Job_Creation_Disappoints_but_Layoffs_Reach_2011_Low) of course.

As to your 2nd question, i dont know. I guess we all have our biases no matter how hard we try not to (or maybe we dont).

[rasilio.livejournal.com]

"The high unemployment rate and large amount of Americans still heavily in debt are two of the main causes for the slow pickup of the US economy."

The bolded part is the real problem. The Federal Debt is a long term problem to be sure, however just looking at the actual Debt of ~$15 Trillion it would be a truely long term issue as we could sustain that for quite a long time before the costs of servicing it grew unsustainable. Even adding in the ~$120 Trillion in Unfunded liabilities however would be a relatively minor issue if the American people had reserves of accumulated wealth such that we could increase taxes significantly without collapsing the economy.

The problem comes in with the fact that there is no reserve of accumulated wealth or even income that could be taxed. Sure, we can raise taxes some. Maybe get a couple hundred billion a year extra but the budgets of Americans as a whole are already stretched thin by their own personal debt and realistically adding more than an additional 1 - 3% of GDP to taxes will push you up to and possibly beyond the point of maximizing tax revenue.

Ultimately the real problem with the US economy is and has for a very long time been the near complete lack personal savings and excessive personal debt and our economy will not function properly until those 2 are reversed.

Course it is hard to blame the American people for their spendthrift ways. Everything from marketing pressures encouraging us to spend more to government policies punishing any form of savings to Fed policy devaluing any savings we may accumulate to the point of worthlessness has made saving a suckers bet for decades. I mean realistically between inflation and capital gains taxes you needed to earn somewhere around a 5% rate of return just for your money to keep it's purchasing power over the last 40 years

[malasadas.livejournal.com]

It isn't my intention to say that bias is altogether bad -- we all have them and partiality is a big part of how we process information.

But I do think that lots of us go in to these discussions not merely with prefered frames of analysis but preordained conclusions looking for opportunities to be expressed.

If folks are going to opine as pundits do on an admittedly troubling set of economic news, I am loading the questioning with something I don't often see asked on pundits and talking heads -- show your work. Explain how the conclusion is justified using warrants not just evidence.

Don't know if that will be forthcoming or not.

[anfalicious.livejournal.com]

I think it's good when we can be honest about our biases. I find it makes cutting through arguments a lot easier if you can realise that you both feel the same thing, but how you think about responding to that is coloured by bias and ideology. It helps to remind one that those who disagree with us are still human and can often be a lot more like us than it seems.

[rasilio.livejournal.com]

1) Simple, prices were never allowed to correct following the crash, instead the government (including most importantly the Fed) did what they have been doing since at least the early 90's, they tried to kick the problem down the road by inflating another bubble. Once the cash flow from that effort ended however there was not enough economic pressure to keep inflating the bubble and we are stuttering our way towards a double dip.


2) I can't and neither can anyone else. Even professional economists must pick and choose their data because the economy is far too complex to even attempt to model on a large scale, however at least they have ready access to all of the numbers needed to do what little can be done. For us play economists we have to rely on those whose opinions we believe the strongest and our own intuition.

[capthek.livejournal.com]

But after the recession of the early 90s, didn't they raise rates again as you are supposed to after the recession and then they didn't do that in the 00s?

Also, I do believe there was a huge swell amount of government spending during the Vietnam era as well and this was far before the 90s. Caused the stagflation crisis, well that and other stuff obviously.

[johnny9fingers.livejournal.com]

Well, the countries that have opted for financial austerity and quick repayments of debt (the UK for example) seem to be faring as badly, if not worse.

I actually have no idea how to rebalance the developed world's economies as single entities. I do think that a new "Bretton Woods" where those nations act jointly in a coherent program led by some economist with great vision might just lead us all out of the mess: but only slowly, alas.

As for the bias thingy....Hayek or Keynes? Given their differences in viewpoints, and seeming that no synthetic position is available, and both opinions appearing to be wanting as evidenced by the plurality of failures of both theoretical models in various national economies: I'd suggest we need a new set of paradigms. But where they may come from I've frankly no idea.

[tridus.livejournal.com]

1) Maybe the recovery is ending and another recession is starting. Or maybe people's expectation that "recovery" will mean easy increases across the board was unrealistic to begin with. The fundamentals were never very good even during the better part of the recovery, so it's not surprising that things would turn south.

2) I don't. Nobody can. This is taking a set of data and trying to use it to explain what's going on (and what will happen) in a much larger chaotic system. The data doesn't have anything to answer the question you're asking: Why?

We're not talking about algebra where there is a provable right answer here. Nobody really knows what's going on, and we instictively use all the data we have to try and explain it, including our biases.

[dreadfulpenny81.livejournal.com]

1. This can be easily explained by the fact we have a Democrat-led government on a spending binge.

2. Improper payments made by government in fiscal 2010 = $125 billion (http://www.washingtonpost.com/wp-dyn/content/article/2010/11/17/AR2010111706323.html) (up $15 billion from the previous year). It was only after this that Obama signed the Improper Payments Elimination and Recovery Act into law.

$65 million spent on low-priority projects, $19 million lost to fraud, $1.2 billion in duplicative spending and $1.9 billion in other mismanagement at the NSF (http://www.nytimes.com/gwire/2011/05/26/26greenwire-sen-coburn-sets-sight-on-waste-duplication-at-55538.html)

When George W. Bush first took office, our national debt was $5.768 trillion. Eight years later when he left, it was $10.626 trillion. That's a $4.84 trillion increase over an 8-year span. As of 6/2/11, the national debt under Obama is $14.345 trillion, which is an increase of $3.719 trillion in a 2-year span from a "leader" who promised to REDUCE the national debt during his time in office. [Source-NPR] (http://www.npr.org/2011/01/25/133211508/the-weekly-standard-obama-vs-bush-on-debt)

[dreadfulpenny81.livejournal.com]

The reason I cited the NSF is because that's the most current news of mismanagement just under ONE government agency.

[meus-ovatio.livejournal.com]

What's the Dow got to do with it? It sluffs off value all the time.

1) How do you explain this string of unpleasant economic news two years into an "official recovery"?
1.8 percent GDP is not a recession, and what do people expect a "recovery" to mean? Ever onwards and upwards, to infinity and beyond?

2) How do you explain your explanation as NOT being a matter of personal confirmation bias and/or partisanship?
The same way you explain not being a wife beater.

[capthek.livejournal.com]

I think this could be called a growth recession though where there is growth but it is below the amount you need to reduce unemployment.

[a-new-machine.livejournal.com]

1.) Because "official recoveries" are solely based on the GDP number being 0.000000001 above 0. It's a term of art, not a term of common use and understanding.

2.) B...because that's the definition of a recovery?

[meus-ovatio.livejournal.com]

Ah, but you forget the best kind of term of art: "Growth recession", meaning: anything less than gang-busters.

[badlydrawnjeff.livejournal.com]

1) How do you explain this string of unpleasant economic news two years into an "official recovery"?

and, to keep everyone honest:

2) How do you explain your explanation as NOT being a matter of personal confirmation bias and/or partisanship?

Many will simply just say "yeah, it's just bdj," but recall that this was not out of the blue. I was actually hoping some of the private sector job growth would hold over the last few months, but it's becoming increasingly clear that it will not happen. The reality is that we're seeing exactly what we've seen in modern and modern-ish economies who attempt Keynesian stimulus (looking at Japan (http://online.wsj.com/article/SB122938932478509075.html) and the Great Depression (http://marginalrevolution.com/marginalrevolution/2011/02/the-failure-of-keynesian-politics.html) in particular) - no real recovery and long term economic issues, perhaps with a double dip.

I keep pointing people to check out books like The Forgotten Man and, for some points, to The New Dealers' War to better understand why these sorts of non-recoveries occur. The problem is that you get people like Paul Krugman who claim that Keynesian economics aren't Keynesian economics (http://krugman.blogs.nytimes.com/2008/11/08/new-deal-economics/).

I think this leads to one conclusion for me, at the very least - economic models are bunk, and we need to stop looking at them for guidance. Keynesian multipliers clearly don't happen, and tax cuts do not increase revenues the way many of their proponents do, so maybe we need to rethink how we're approaching these issues. We'd probably abandon a lot of behavior outright if we looked at the track record of those policies as opposed to the multipliers and theories.

[underlankers.livejournal.com]

Germany took Keynesianism beyond any other nation and left the Depression in 1936, three years into Adolf Hitler's rule as chancellor and two years into it as dictator. That this was so was one reason Germans were predisposed to think well of the Bohemian Corporal.

[underlankers.livejournal.com]

1) My opinion of it is that there has been some degree of improvement in the economy, but nowhere near enough what the President said would be the case in the first place. His promising to hold unemployment to 8% was as stupid as the Elder Bush's "Read my lips, no new taxes."

I attribute this partially to the crisis being more severe than it was expected to be, partially to the international nature of the crisis, and also because President Obama's political style is that of a nice man and a mediocre President whose chief abilities are to be a Great Communicator.

2) There's no way to answer this question beyond that it does reflect already-existing biases and preconceived beliefs.

[capthek.livejournal.com]

I agree with this analysis above the rest, but will add an additional two cents.

I teach economic geography and as I always tell my students, lets try to be original. We hear the neoclassical, libertarian, and keynesian arguments all the time, how about an anarchist one, or a marxist or ???

Marx would point out that economies often boom after a large devaluation. What does this mean? This means that something suddenly becomes much less expensive than it was and thus everybody can be more wealthy with no additional inputs. Because things like wages and prices are rather sticky in our modern age and wont rapidly rise or fall, often this devaluation comes about through technology.

What does this mean? The classic example is a new discovery increases productivity and you can make two widgets per hour when you could only make one before. Often these can also sadly cause a bubble due to overhype, while at the same time they give society and an economy real benefits and that is why the hype is so easy to believe. Examples range from the old Train investors, to the dot com bomb.

I have been advisedly watching and hoping for some new technology to come along and save us, and I can see DNA processing technology and solar power technology being real boom industries during the 20teens. Sadly the only thing we have currently is the cloud computing and tablets/ereaders. There are other vague things, but it does not seem to me that any of this progress will lead to a boom right away, and instead a slow growth trend.
: (

that is my attempt to be original

[policraticus.livejournal.com]

All economic pronouncements are based on confirmation bias, since there is no way to run the "experiment" again with altered variables.

I say we introduced perverse incentives that allowed for malinvestment, fraud and the collapse of the market. I also say our attempts at fixing this via stimulus was ill thought out, badly directed and pretty fruitless. We are watching water out of a hole in a levee and hoping that government can paper over the hole with dollar bills until the levee can be repaired. Unfortunately, the money that the government is using to paper over the hole is the very money that private enterprise needs to actually fix the problem. But that is just me.

What we should be doing is admitting that a huge chunk of our economy was based entirely on bullshit and start fresh with clear, stable rules and allow people to use their money in ways that they find most advantageous and then let the chips fall where they may.

[nevermind6794.livejournal.com]

Private enterprise has no shortage of money with which to fix the problem. But they're still making money, so they have no incentive to hire anyone.

[root-fu.livejournal.com]

There's an excellent answer for it, but you'll never get it using obsolete and inferior abstracts such as the Keynes vs Hayek dichotomy.

[luzribeiro.livejournal.com]

And of course you'll eventually share that unique answer with the rest of us, right? ;)

[kylinrouge.livejournal.com]

1) I don't know what the parameters for a recovery are. Maybe low employment, like 4% instead of 9%? If we had that it would be pretty good.

2) I don't know how people will take this as partisan or whatever, but I believe this government has both a spending problem and a revenue problem. I always thought it was basic macroeconomics to raise taxes during times of prosperity and cut them during times of lowered growth, but now I see that it doesn't quite work that way when you hit the debt ceiling. Maybe if we had a surplus during those times of prosperity you can consider this action.

It doesn't help my previous view when the evidence shows that tax cuts lose revenue. (http://www.cbpp.org/cms/?fa=view&id=507)

Regulations are also a problem. We have a lot of regulations, but they tend to favor Big Business, with government-mandated monopolies, patent law, and all sorts of things that gave corporations an edge over their competitors. I wouldn't say less regulation as a rule, but smarter regulation is needed.

That said, let's say we did that and we have more money and don't have to worry about the debt ceiling at the moment. We can spend some money. There was a post recently about Turkey's economy thriving, but... not a lot of looking at the underlying causes. Sure, they have production and exports and whatnot, but so do a lot of countries that are still in low growth.

The thing that Germany and Turkey does is depress its labor force. They keep people employed but for less, they have policies that encourage workers to cut hours or days and not jobs. Germany in particular has a program where they give 1/5 or something of unemployment benefits to people who have had their hours cut. But I mean, so now these two countries have this cheap labor force, high employment, which is making their economy grow at good levels, but what is the endgame? Once you lower those wages, it's hard to make them go back up. The country recovers, but the workforce suffers.

I guess what I'm saying is it's hard to claim a recovery without looking at all the factors that make up a good economy. People who claim we're still in a bad place are ignoring various good things that happened, and vice versa.

[the-rukh.livejournal.com]

I always thought it was basic macroeconomics to raise taxes during times of prosperity and cut them during times of lowered growth

It is. But unfortunately it is only basic macroeconomics and not basic politics. Basic politics is we have money? Lets cut taxes! Votes, woohoo!

[anfalicious.livejournal.com]

What are gas prices doing there at the moment? Here they've hit the highs of 2007, I paid AU$1.61/l yesterday (US$6.50/g). The booming commodities have a different effect here, our mining sector is booming whilst the rest of the economy, whilst not struggling, is almost standing still. This has led to what they call a "two speed economy" that is having some really distorting demographic and economic effects. For example, in many mining towns, demand for housing has pushed rent and housing prices so high (miners get paid BIG bucks) that locals can't afford houses anymore. There's stories of petrol station staff having to live in tents out the back.

[nevermind6794.livejournal.com]

They hit highs a month or so ago, and have dropped 5-10% since.

[nevermind6794.livejournal.com]

1.) The recovery was never particularly strong; we were barely generating enough new jobs to keep up with demographic growth. One month is not a trend, though; we had a lot of issues crop up recently. Let's see what happens the next two months or so.

2.) I don't see where partisanship comes into my answer; one is based on population growth and the other on the existence of outliers. The partisanship mostly comes in when people try to describe why these things are the case: whether the stimulus helped or hurt; which theories apply; things like that.

[harry-beast.livejournal.com]

1) Evidently, the recovery, although officially approved by whoever it is who decides these things, isn't as impressive as people had hoped. Putting on my armchair economist's hat ... It seems that the past few recessions were "fixed" by unsustainable factors such as low interest rates, increased consumer debt, various stimulus measures, etc. It was all a shell game. Now, there are no more easy solutions, no quick fixes, no legerdemain that is going to make all the economic problems that caused the mess disappear. And, predictably, none of the glorious leaders want to make the tough choices to put the country on the long and difficult path to a real recovery.

2) It's opinion on the internet. Meh.

[http://users.livejournal.com/-wanderer-/]

Now, there are no more easy solutions, no quick fixes, no legerdemain that is going to make all the economic problems that caused the mess disappear.

I find your ideas intriguing and I would like to subscribe to your newsletter.

[il-mio-gufo.livejournal.com]

1) How do you explain this string of unpleasant economic news two years into an "official recovery"?

either... a) what was termed a 'recession' in 2008 was really a 'depression' but downplayed to avoid gross panic.

or....b) that double-dip recession concept really is applicable here.

2) How do you explain your explanation as NOT being a matter of personal confirmation bias and/or partisanship?

I pull from the concepts I hear from NPR's daily guests :D

[sandwichwarrior.livejournal.com]

I'm just glad they've stopped ussing the prefix "unexpected". "unexpected down-turn", "unexpectedly sluggish" etc...

Something is only unexpected the first time it happens, after that it is within the established range of available data.