Tag Archives: Great Recession

Which Phase in the Headline Does Obama Prefer Least?

“Recession Officially Over, U.S. Incomes Kept Falling”

In a grim sign of the enduring nature of the economic slump, household income declined more in the two years after the recession ended than it did during the recession itself, new research has found.

Beyond that, it is worth investigating what exactly the Times’ data means? To understand any data, the units must be defined. What is a household? A single parent with a part-time job and five children is a household, as is a house with “DINKS:” dual income, no kids. What are we to make of that disparity, or of the fact that people can combine to form households or separate to divide them? Households in general have shrunk over time.

The size of the American household has shrunk by a huge amount over the last several decades (though it’s gotten more stable in the last couple of years) as families have fewer children, adults delay marriage and single-parent households become increasingly common. So income per household could stay the same even if income per individual were rising.

In the year 2000, the top quintile of households had 20 million people working. The bottom quintile had 8 million. Furthermore, there were more people, in absolute numbers, working full time in the top 5% of households than in the bottom 20% of households. You wonder, certainly each quintile should be an even layer, representing the same number of workers and people, shouldn’t it? Perhaps it should, but it doesn’t. The unit is meaningless and, worse, misleading, unless properly defined.

What does it all mean? First, it does not mean that we have not fallen on hard times. We have. In that same Times article, Robert Pear writes,

One reason pay has stagnated is that many people who lost their jobs in the recession — and remained out of work for months — have taken pay cuts in order to be hired again. In a separate study, Henry S. Farber, an economics professor at Princeton, found that people who lost jobs in the recession and later found work again made an average of 17.5 percent less than they had in their old jobs.

This is both discouraging (17.5 % is no small amount) and necessary for our public balance sheets (that worker is again contributing to GDP and paying taxes while not collecting unemployment payments). It will most likely also be temporary. Said worker will continue to earn a lower wage until s/he either finds a better paying job or until the excess supply of labor (the unemployed) decreases and wages increase to pre-recession levels.

The second take-way is never to trust economists using statistics of households or other such sloppy units of measurement.

Leave a comment

Filed under Economics, Economy

No Matter What, the Economy Will Recover

And whoever occupies the presidency from 2013-2017 will get the credit. Or so Ezra Klein apparently is arguing in the Washington Post. Klein writes that Obama isn’t FDR, because FDR took office three years into the Great Depression while Obama took office at the peak of the current recession. And he isn’t Hoover, because a majority of Americans, according to an AP poll, still blame Bush for the mess we are in. But whoever is elected next could be FDR, and with that set the stage for a long period of their respective party’s dominance:

As Larry Bartels, a political scientist at Vanderbilt University, has written, globally, the pattern is clear: Whichever party was in power when the Great Depression hit was booted out of office, and whichever party was in power when the global recovery took hold reaped huge political benefits.

This happened in the U.S., Great Britain, Australia, Canada, Germany, and Sweden, for example. The same should be true for this recovery. If it happens under Obama, the Keynesian approach will be credited and Democrats will see significant and lasting gains at all levels of governance. If it happens under a Romney or Perry presidency, their plans will be vindicated and receive the following that Reagan’s supply side economics has enjoyed since his first term.

And, Klein argues, “because a recovery is likely within five years — if it doesn’t happen, we’re sunk — whichever party wins the White House in 2012 is likely to get the credit, and so too will its policy agenda.” There is no mention that Obama’s proposed $450 billion job creation bill may not be strong enough, as the Left argues. Gone is the argument that the austerity Republicans are campaigning on is the exact opposite of what Keynesian economists are recommending, and thus that will make the economic recession worse by decreasing aggregate demand and increasing long-term unemployment. Klein essentially is arguing that regardless of what is done, and by whom, the economy will rebound significantly after 2012. And he wants the Democrats to get the credit for all they’ve done to make it happen. Either there are real differences with real consequences for the economy, or there aren’t. Nothing is guaranteed. Klein knows that.

Leave a comment

Filed under Economics