Fair But Unbalanced Reporting on the Economy
According to futures trading on Intrade.com, there is only a 8.5% chance that the U.S. economy will experience a recession in 2007. According to Brian Wesbury writing in today's WSJ, "the July WSJ economic forecasting survey shows that 49 out of 60 forecasters expect real GDP to grow at an average annual rate of 2%, or faster, in 2007. Of the remaining 11 forecasters, only two expect growth of less than 1%, and only one expects a recession. For 2008, the forecasters are even more optimistic, with none expecting recession."
"Despite this, an NBC News/WSJ poll in July found that 68% of Americans thought that the economy was either in recession already, or would experience a recession sometime during the next 12 months. Interestingly, this is not much of a change from the past. This same survey question has been polled at least five times since September 2002. Each time a robust majority of between 65% and 85% of respondents thought a recession was either underway or would occur within the year. Americans have been bearish on the economy for quite some time."
Why the disconnect between economic reality and the general public's misguided and distorted perception of the economy?
Brian explains it this way: "A randomly selected pairing of economists from the WSJ forecasting panel would pit two rather optimistic forecasters against each other in debate. But having two economists debate about whether GDP will grow 2.1% this year or 2.4% is downright boring. As a result, the producers of business news spice things up. They arrange for debates between a bullish economist and a bearish economist." (MP: Like my debate on Kudlow & Company.)
Why the disconnect between economic reality and the general public's misguided and distorted perception of the economy?
Brian explains it this way: "A randomly selected pairing of economists from the WSJ forecasting panel would pit two rather optimistic forecasters against each other in debate. But having two economists debate about whether GDP will grow 2.1% this year or 2.4% is downright boring. As a result, the producers of business news spice things up. They arrange for debates between a bullish economist and a bearish economist." (MP: Like my debate on Kudlow & Company.)
"While this is entertaining, and may bring in eyeballs, which sell commercials, this idea of "fair and balanced" debates leaves an impression that the experts are split 50/50, when in reality it's more like 80/20, or 90/10. But if all the public sees is an endless stream of 50/50 debates, then it is really not that much of a surprise that people think the future is basically a coin toss. And a coin toss, especially in a time of war and terrorism, is not very good odds."
16 Comments:
You're assuming people are basing their perceptions on experts or the news instead of their own personal experience.
Here's my personal experience over the last three years: heat and electric bills up over 30%, gasoline up over 30%, grocery bills up 20%, car insurance up 10%, house insurance up 20%, and property tax up 15% just to name a few. In fact, I can't think of anything I pay less for today than three years ago.The only thing that's down is my take-home pay by about 20%.
I don't know what the "experts" definition of a recesssion is, but I know I am personally experiencing a decline in my purchasing power. Maybe the experts don't look at people's real-life experiences. Maybe increased GDP does not benefit people at all income levels and occupations. Maybe the experts are right and I'm just too stupid to realize it.
Don't forget that Michigan and its economy are extreme outliers, with a 7.2% June unemployment rate, the highest in the country, more than 1% higher than the next state, Ohio at 6.1%. Our view of the overall U.S. economy might be somewhat distorted here in Michigan.
Based on overall employment levels, unemployment rates, real production and real compensation, the U.S. economy is in its 69th month of a strong economic expansion, possibly the longest and strongest in U.S. history.
I've got a job, so the outlier of Michigan unemployment really does not apply in my case.
Are you saying that the increase in my expenses does not apply nationwide? With the increases I discussed, I don't believe that real compensation has kept pace to hold disposable income on par with three years ago in the United States.
You mentioned the following economic indicators for a recession/expansion: overall employment levels, unemployment rates, real production and real compensation. However, unless you subtract living expenses from real compensation, the average working person can still suffer a lower standard of living even while the economic indicatrors suggest an expansion.
I don't doubt that there is some good news in the economy that needs to be communicated to the public. I just believe there is more to the story that's not being counted.
"I just believe there is more to the story that's not being counted."
I believe in Flying Spaghetti Monster.
Yet the actual chances of me receiving divine pasta from on high tonight is exceedingly low.
BTW, if your property taxes are up 15%, that probably means that your house value increased 15%, so at least something is looking up.
But you're working for a corporation that has lost almost $13 billion over the last two years, has seen its market share decline from 50% to 25% over the last 25 years (and continues to decline almost monthly), and are part of a union that has lost 38% of its membership over the last 15 years - in other words part of an industry and union in serious decline, possibly headed toward bankruptcy (GM) and extinction (UAW). But that is not really representative of the average worker in the U.S. in other industries.
18 states have set record-low unemployment rates, and from a previous post based on David Brooks in the NY Times:
1. Real average wages rose in 2006 at the second fastest rate in 30 years.
2. The poor are getting richer. Between 1991 and 2005, the bottom fifth increased its earnings by 80%, compared with 50% for the highest-income group and around 20% for each of the other three groups.
Even in the strongest economic expansion, there will always be some workers who are displaced or are experiencing declining wages, but economic expansions and recessions are not based on anectodal evidence, but overall macroeconomic trends. The U.S. economy, and most of the world, is in an economic expansion of unprecedented proportions, in terms of the amount of wealth created for the average person, and the number of people being lifted out of poverty.
"The U.S. economy, and most of the world, is in an economic expansion of unprecedented proportions, in terms of the amount of wealth created for the average person, and the number of people being lifted out of poverty."
How can the "average person" have increased his or her wealth over the last few years in the United States? Data from this blog, the U.S. Census Bureau, and the Bureau of Labor Standards all show that wages/compensation are stagnant or have declined in real dollars over the last few years for those with less than a bachelor's degree educational attainment. The same sources show that about 2/3 of the U.S. workforce do not have a bachelor's degree or better education. I’m not sure of your definition of “average,” but I don’t think that 1/3 is most. It’s difficult or impossible to build wealth with declining compensation. That’s not just anecdotal evidence, it’s a fact.
I realize that each worker has an individual set of factors that determines prosperity; however, I don’t think GM employees are unique in the United States’ workforce. Although GDP might me an accepted indicator for wealth creation and the state of the economy at the aggregate level, it might be a poor indicator at the individual level. If a worker could afford to take his or her family out to dinner once a week after paying all the bills a few years ago, and now he or she can only go out to dinner every other week after paying all the bills, I doubt that an economist can be very persuasive about a prosperous economy. Economists’ perceptions are not reality; the general public’s are.
Anonymous said:
"BTW, if your property taxes are up 15%, that probably means that your house value increased 15%, so at least something is looking up."
You're wrong. Property taxes up, property value down, and I can prove it using accepted accounting and real estate appraisal methods. It didn’t do much good at my property tax appeal hearing, but they get to make their own rules there. You can’t beat the house when they stack the deck.
walt g:
The UAW mostly supports democrat politicians. Democrats support higher taxes.
I would think you would be celebrating the higher taxes you are paying. Think of the investment you are making.
As to the higher prices you are paying - they support some worker somewhere getting a pay increase. Again, a reason to celebrate.
Increased "investment", increased pay. Sounds like a win-win to me.
Bob Wright,
I support people, and not political parties. Along the same line, I suppose one could argue that Republicans support record budget deficits and huge national debt levels.
Professor Perry,
I think you are discussing average worker data whereas I am discussing typical worker data. They are not the same. I maintain the typical worker is not experiencing the wealth gain of the average worker.
Here’s a better explanation below from the Bureau of Labor Statistics about their worker earning data.
“(3) The series are the average earnings of all production or nonsupervisory jobs, not the earnings average of "typical" jobs or jobs held by "typical" workers. Specifically, there are no adjustments for occupational, age, or schooling variations or for household type or location. Many studies have established the significance of these factors and that their impact varies over time. “
Source: BLS Report, Explanatory Notes page: http://www.bls.gov/news.release/pdf/realer.pdf
See this post .
U. S. Census Bureau 2005 American Community Survey data show only 27.2% of the U.S. population over age 25 has a bachelor degree or better. How much economic prosperity are the 72.8% of those without bachelor degrees experiencing?
My research from Bureau of Labor Statistics’ data shows this:
"Chart 2-6: Median weekly earnings of full-time workers 1979-2005
(Chart Omitted)
• Real median weekly earnings for college graduates have trended up over time
•Only college graduates have experienced growth in real median weekly earnings since 1979. In contrast, high school dropouts have seen their real median weekly earnings decline by about 20 percent.
• Real earnings for high school graduates and for persons with some college or
an associate degree were little changed over the 1979-2005 period.
• For most workers, real earnings have been relatively flat since 1999."
I agree there is a wage premium for education, but I was answering this question from your original post: “Why the disconnect between economic reality and the general public's misguided and distorted perception of the economy?” The answer's simply because most people's (72.8%) perceptions are real and not distorted.
Do you disagree with the U.S. Census Bureau or the BLS data that I've provided, or my analysis from that data?
As I said before, Michigan is an outlier, the majority of states are doing quite well, see this post.
I agree Michigan is an outlier, but I am using U.S. data to address current U.S. economic issues. How is 72.8% of the U.S. population experiencing economic growth with flat or declining wages?
Here's more from the U.S. Census Bureau. In 2000, 9.2% of 72.3 million families were in poverty. In 2005, 10.2% of 74.3 million families were in poverty.
If more families are in poverty now, and the long-term wage trend for the majority of the U.S. population is flat or in decline, where is the economic prosperity? In addition, if the jobless rate is so low, why is the poverty rate increasing? Low wages, high living expenses, both?
I'm with Walt G this time !
The same U.S. Census Bureau as your post has data that show a 1% increase in family poverty between 2000 and 2005. I assume the bottom quintile income group would contain those who are in poverty (the bottom 10%). If that group had an increase in real income, why did more people slip into poverty during the same time frame? Is the top half of the bottom 20% skewing the results that much?
I'm not really trying to be contrary here, but the conflicting data is from the same source. It is an authoritative and widely cited source, so it should be unbiased. Regardless, we are both using it to reach different conclusions. Why so?
See previous post.
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