Location: United States

Friday, February 03, 2006

Correction - and further analysis

I incorrectly linked and quoted the wrong State of the Union address this week. Thanks to Enlighten-NJ for pointing this out. I have no excuse for it, other than to say I'm human and it was a dumb mistake and I accept responsibility for it. My apoligies to everyone.

Here is a link to correct that mistake. The paragraph I quoted should have been this one:

Our economy is healthy and vigorous and growing faster than other major industrialized nations. In the last two-and-a-half years, America has created 4.6 million new jobs -- more than Japan and the European Union combined.

Enlighten also says that they (I believe it is a group blog, so the plural is proper) don't understand what I'm talking about - however, that doesn't keep them from saying I don't know what the hell I'm talking about.

I'll try and explain better.

First, "major industrialized nations" is actually improper terminology. Nations are not industrialized - they are groups of people. Countries are. Of the comparative politics books I own, a list of countries considered as "major industrialized" would have to include the UK, Germany, France, and Japan (among others). I include Australia and Canada, though some would dispute that. There is no definitive list, though. They are industrialized, to be sure. As to whether or not they are "major" is left open for debate.

The data I used for my analysis was taken from the official World Bank statistics compilation. They have data available from 2000-4, so those are the years I chose to look at. Enlighten wonders, "What happened to 2005?" It's January. The official statistics for 2005 have not been compiled, checked, and submitted to the World Bank. Usually, they will be released around June.

The US Bureau of Economic Analysis - which Enlighten found through my link, though you won't find any explanation of that in the post - gives the data on GDP growth rates through 2005q4. What is actually cited at his page is the "advance estimate". I didn't include it because it is statistically inaccurate to do so. Here is why:

The advance GDP estimate for the fourth quarter of 2005 is based on source data that are incomplete and subject to revision...Only two months of data were available for most other key data sources; BEA's assumptions for the third month are shown in table A. Among those assumptions are the following:
  an increase in nondurable manufacturing inventories,
  an increase in non-motor-vehicle merchant wholesale and retail inventories,
  a decrease in exports of goods, excluding gold, and
  an increase in imports of goods, excluding gold.

Economists love assumptions and estimates. Political scientists don't.

It's good to read the instructions on data. Inside this "best guess" you will also find this statement:

The price index for gross domestic purchases increased 3.3 percent in the fourth quarter after increasing 4.2 percent in the third. Excluding food and energy prices, the price index for gross domestic purchases increased 2.9 percent after increasing 2.5 percent.

That means, very simply, that stuff costs more now than it did three months ago, at which time it cost more than it did three months before that. I know - it's no news flash.

You can also read the "Highlights" of the release, available in pdf form here:

The slowdown in GDP growth in 2005 mainly reflected a downturn in inventory investment, a slowdown in consumer spending, and a slowdown in federal government spending.

As Enlighten notes, this reflects a trend of increasing GDP. From 2001q1 through 2005q4, that increase was a total of 13.75%. This compares to a 32.55% growth during Clinton's eight years in office (1993q1 - 2000q4). If we cut off the final two years of Clinton's terms, so we are comparing the same amount of time in office (1993q1-1998q4), we get a cumulative growth rate of 23.83%. Go back to the Reagan era and you get a cumulative growth rate of 15.85% from 1981q1-1985q4.

You won't get those numbers by averaging average growth - you have to use the actual numbers. Averaging averages introduces a consecutively larger error into you figures. These numbers were found by dividing the ending number by the beginning number and subtracting one, then multiplying by 100.

Are we growing faster than other industrialized countries? Not according to the World Bank. Will the inclusion of 2005 data change the analysis? Some. But even if our GDP growth rate holds at 3% for the year, we will do little to pull even with Canada and Australia, and even less to catch up with the World Bank's "High Income" group (because our gain will average in with the entire group's gain). We are well ahead of both France and Germany, and about as far ahead of the UK as we are behind both Autralia and Canada.

As I pointed out - and Enlighten failed to cite - "But, we're improving. Half of our growth over the last five years has come in the last two."

To explain "capital formation", I'll refer you here:

The transfer of savings from households and governments to the business sector, resulting in increased output and economic expansion.

It's a measure of how much capital (money) businesses have on hand to expand. If you want to know the exact data, I'll refer you to the original post, which linked to the World Bank statistics. Forgive me if I insist that my readers have enough intelligence to follow a link and click on choices to create a graph.

As I stated, our inflation is about the same as others, but numerous news stories have shown that real wages are lagging behind. That means, when taken all together, that our economy is not "growing faster than other major industrialized nations". It is, as I said, barely keeping pace. However, as I also said, the last two years have caught us up for lagging behind for the first four years of the Bush Presidentcy. As Enlighten pointed out, and as the data shows, this is changing.

GDP per capita, Enlighten says, shows that we are far ahead. However, that is a weak measurement of anything. The best indication it gives is the rough amount of productivity per person. We're leading the way there, to be sure. However, you have to click through to find out that Enlighten is changing data sources. But there's no historical perspective, either. Have we increased our lead or have we lagged behind? That, after all, was the statement the President made. It's a totally irrelevant factoid. It doesn't tell us anything about what we're studying, nor does it provide any basis for gauging the information that it should tell us. Politically, it's distraction.

Enlighten then brings out the World Economic Forum's "Growth Competitiveness Index". However, the GCI measures only the competitiveness of an economy - not how fast it's growing. It only tells us that we rank second to Finland (another "industrialized country" - is it a "major" one?) in having a competitive economy. Again, it's a distraction and it's superfluous to the issue.

If we turn to jobs - you can see here that the US unemployment rate is actually higher than Japan and the UK. Of course, the President never mentions the unemployed. If you look at data from the US Department of Labor (Most Requested - Nonfarm) (the World Bank doesn't track this); then you will see that in November of 2005 (the last date we have reliable info) there were 134,231,000 jobs in the US (non-farming). In January of 2001, there were 132, 471,000. That's a growth of only 1,760,000 jobs. The President likes to brag about the last two and a half years because that's pretty close to the time we hit bottom in losing jobs - 129,822,000 jobs in July of 2003. Woohoo! He's brought us back from the pit into which he led us.

Enlighten doesn't miss a Republican beat - trotting out both "tax cuts" as evidence that we are doing better because of Bush's action and "9/11" to explain why that isn't true. You can't have it both ways. More than that, you can't have it wrong and pretend it's right. The damage of 9/11 was confined mostly to travel and tourist related industries, as well as banking and security. It was substantial.

First, note that the report Enlighten cites is technically incorrect:

as we now know the first three quarters of 2001 posted negative growth.

See my previous post - or even Enlighten's - to see that it simply didn't happen that way. That's a technicality, as the growth was slight. However, it highlights the fact that you need to read carefully:

There are three reasons for the resilience of the U.S. economy. First, the Federal Reserve cut interest rates three times in the wake of the attacks after cutting rates eight times in the eight months preceding them. Second, in May 2001, President Bush signed into law the first tax cut since 1986 and the Congress passed a stimulus bill, which included business tax cuts, in early 2002.
Finally and most importantly, productivity continued to grow throughout the U.S. recession.

So, small kudos to the tax cut for helping things along.

When compared to the losses sustained in past wars, the costs of the September 11 attacks and the resulting counter-attacks in Afghanistan are small.

If you accept the false recession, which I don't (a definition must mean something, not everything); then you have to also look at this fact:

Despite continued strength in consumer spending and retail sales, the recession was dated as beginning in March 2001, five months before the attacks.

Lest we think that 9/11 still haunts our economy:
Nonetheless, the U.S. economy bounced back. Within days, consumers and businesses were back up and running.

I know it hurts a lot of people's feelings to hear this, but 9/11 did not totally devastate our economy. Yes, it hurt it. Yes, the tax cuts helped. But, as that very same report notes:

But perhaps the most important driving force behind America's resilience has been strong productivity growth. One of the greatest tests of the strength in underlying productivity trends is the performance in those trends during economic downturns and external shocks to the economy. Clearly, the U.S. productivity performance during the 2001 recession and following the September 11 attacks was spectacular.

But we continued to lose jobs through July 2003 (Most Requested - Nonfarm) Neither 9/11 nor tax cuts had any discernable reaction in the job market. The number of jobs were declining prior to 9/11 and continued long after the terrorist attacks - and the tax cuts - had passed.

I don't have the actual data on how many jobs Japan has created - and if anyone finds good data sources, please share them. However, Japan has a total labor force estimated to be about 66.4 million and the US has 149.3 million - so directly comparing the number of jobs they create is, again, superfluous - especially considering that one of the largest criticisms of the Japanese economy has historically been that it grants "jobs for life" and neglects to create new jobs for younger people and women. Addressing that problem has caused Japan to suffer unreasonably high unemployment rates.

So, Enlighten-NJ, you were correct when you said you didn't know what you're talking about. I accept the unforgiveable error of linking to the wrong text, and I thank you for pointing it out to me. I don't appreciate your uninformed statement to the effect that I don't know what I'm talking about. I'll offer you a deal that will make us both look a bit less foolish - I'll double check the dates on my links, and you take my class and learn a little bit before you open your mouth and show off your ignorance.


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