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Six Things George Will Would Not Have Said If He Had Access to Economic Data

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Thursday, 29 May 2014 05:08

George Will devoted his column today to complaining about Obamanomics, or more specifically the state of the economy during the Obama administration. The article includes a serious of inaccurate or misleading statements which Will presumably made because he doesn't have access to data from his home or office in Washington.

1) Will told readers:

"June begins the sixth year of the anemic recovery from the 18-month recession. Even if what Obama’s administration calls “historically severe” weather — a.k.a., winter — reduced GDP growth by up to 1.4 percentage points, growth of 1.5 percent would still be grotesque."

Actually quarterly data are always erratic and an individual quarter tells people almost nothing about the state of the economy. (The first quarter number was revised downward this morning to show negative growth.) If Will thinks that a 1.5 percent growth rate would be "grotesque" then he would presumably also be appalled by the 1.9 percent growth rate the economy saw in the second quarter of 1986, the sixth year of the Reagan presidency. The best quarterly growth figure we have seen in the last four decades was the 16.5 percent annual growth rate in the second quarter of 1978 in the midst of "Carter-era stagflation."

 

2) Will complained:

"The recovery’s two best growth years (2.5 percent in 2010 and 2.8 percent in 2012) are satisfactory only when compared with 2011 and 2013 (1.8 percent and 1.9 percent, respectively)."

The recovery has indeed been anemic, but this is due to the fact that this recession was qualitatively different from prior recessions, with the exception of the 2001 downturn. It was caused by the collapse of a housing bubble. If Will had access to data he would know that house prices rose by more than 70 percent above their trend level at the peak of the bubble in 2006. This led to record levels of construction. The wealth effect from $8 trillion in bubble generated equity led to a consumption boom with the savings rate falling to record lows.

When the bubble burst there was no easy way to replace the lost demand from the collapse in residential construction and consumption. Folks who have managed to take an intro econ class know that there are only five components of aggregate demand. In addition to residential construction and consumption, we have non-residential investment, government spending, and net exports. An economic collapse will not generally provide the basis for a boom in non-residential investment. Will's Republican allies in Congress (along with many Democrats) have acted to make sure there was no big increase in government spending.

This only leaves net exports. A major rise in net exports would require a sharp decline in the dollar, which would make U.S. goods and services more competitive in the world economy. However powerful interests like Walmart, which have low-cost supply chains in the developing world, have no interest in seeing the dollar fall in value relative to other currencies, which would undermine their competitive advantage.

Anyhow, given the nature of the downturn, the weakness of the recovery was predictable and predicted. The economy was also slow to recover from 2001 recession, which was caused by the collapse of the stock bubble. It did not start generating jobs again until the fall of 2003 being pulled forward by the growth of the housing bubble.

 

3) Will refers to the Carter era "stagflation." The economy's growth rate for the 16 quarters of the Carter presidency averaged 3.2 percent. This is not an especially bad growth rate, especially since Carter had to deal with the quadrupling of oil prices associated with the Iranian revolution in the last two years of his presidency.

 

4) Will touts the virtues of Paul Volcker's recession at the start of the Reagan presidency which he tells were followed by:

"the 1983-88 expansion, when growth averaged 4.6 percent, including five quarters above 7 percent."

The main reason the growth was so strong during this recovery was the severity of the recession in which unemployment peaked at 10.8 percent. The recession was a classic post-war recession brought on by high interests. While the downturn was painful, the prescription for recovery was simple: lower interest rates. With a huge amount of pent-up demand for housing, the lower interest rates sent construction soaring. Residential construction increased at a 35.7 percent annual rate in the fourth quarter of 1982, an 88.6 percent rate in the first quarter of 1983, and a 55.4 percent rate in the second quarter of 1983. This sort of construction boom was not possible coming out of the 2007-2009 recession since the downturn was caused by the collapse of the building boom sparked by the bubble. The 1983-88 expansion was also helped by the collapse of oil prices as more oil came on line in response to the 1978-80 surge in prices and consumers responded by reducing demand.

 

5) Will claims:

"The more than $1.1 trillion of student loan debt — the fastest-growing debt category, larger than credit card or auto loan debt — is restraining consumption, as is the retirement of baby boomers."

Actually consumption is not restrained. The saving rate out of disposable income was just 4.0 percent in the last quarter. This is lower than at any point except at the peaks of the stock and housing bubbles when the wealth effect from trillions of dollars of bubble generated wealth was driving consumption.

 

6) Will tells readers:

"And investment in residential property is at the lowest level (as a share of the economy) since World War II. 'If,' Irwin [New York Times reporter Neil Irwin writes, 'building activity returned merely to its postwar average proportion of the economy, growth would jump this year to a booming, 1990s-like level of 4 percent.'"

This was true in 2009-2010 when residential construction was less than 2.7 percent of GDP. In the most recent quarter construction was at 3.1 percent of GDP. It would of course be helpful if construction rose to 4.0 percent of GDP, but it is not surprising that housing construction would be below trend with vacancy rates still at unusually high levels as a result of the overbuilding of the bubble years. 

 

Clearly if Will had access to these data he would have written a very different column. Fortunately for Will, at the Washington Post people who write on economic issues are not expected to be familiar with economic data.

 

Note: Typos corrected.

Comments (10)Add Comment
Will did not support policies that would have improved growth
written by Dennis, May 29, 2014 9:57
In fact, he was highly critical of the inadequate stimulus that actually was attempted. Without that stimulus, growth would have been even lower.
not that it changes any points you make but
written by Steve Stein, May 29, 2014 10:02
"the second quarter of 1986, the last year of President Reagan's first term"
No.
'84 was the last year of Reagan's first term. So something is wrong here.
(a nit, to be sure)
...
written by PeonInChief, May 29, 2014 10:33
I think you're giving George Will too much credit. There's no evidence that he would have understood the data, even if he had access to it.
But where did the low rates come from in the early 1980a?
written by pete, May 29, 2014 10:52
True, short term rates peaked at about 20% in December 1980, but this was not Volker's target. By around 1983 they were back to where they were in the Carter problem years of 1978/79, 9%/10% certainly not "low" by any measure. And this was not a deliberate policy to lower rates. The Fed (AKA Volker) was fixated on the money supply. Anyone will recall the weekly announcements of the money supply, as this has an immediate impact on interest rates/the stock market. Interest rates were free to float. In fact the Reagan economic team was (at least publicly) pissed off at Volker, wanting him to loosen up and lower intererst rates. Thankfully Volker prevailed, inflation shrank, and as a result, ultimately, rates fell. By the early 1990s they were finally below 6%.
...
written by JDM, May 29, 2014 11:25
Since Will is enamored of Volcker's policies, I'm sure he praises Jimmy Carter for appointing him and starting those policies. Doesn't he?
Is George Will a Truther?
written by Last Mover, May 29, 2014 11:30
Clearly if Will had access to these data he would have written a very different column.


George Will should apply his empirical skills acquired in embarassing columns on economics to assist truther groups who believe the twin towers were brought down by a government conspiracy on 9-11.

He would do well to advance their cause, searching for data to explain ideological conclusions already made. Undoubtedly his preferred explanation would be the towers fell due to shoddy construction, in turn due to overtaxation of the builders who skimped on design strength standards that would have withstood the fake attack by planes.
...
written by JSeydl, May 29, 2014 11:31
The recession was a classive post-war recession


Should be "classic"
Correction!
written by Mark Brucker, May 29, 2014 12:32

George Will devoted his column today to complaining about Obamanonmics, or more specifically the state of the economy during the Obama administration. The article includes a SERIES (((serious))) of inaccurate or misleading statements which Will presumably made because he doesn't have access to data from his home or office in Washington.
...
written by joe, May 29, 2014 12:53
Any article that compares the Reagan recovery to the Obama recovery is not a serious article.

First, the economy was never against the zero lower bound during the Reagan years.

Second, govt spending gave a huge boost to the economy in 85 and 86. 1/3 of real GDP growth came from the public sector. In 85, real GDP grew 4.2% with the public sector contributing 1.3% of that 4.2%. In contrast, the public sector has contracted during the Obama recovery. In 2010, the public sector contributed .2% to 2.5% growth. In 2011 to 2013, the public sector contracted and was a drag on growth.

Table 1.1.2. Contributions to Percent Change in Real Gross Domestic Product
http://bea.gov/iTable/print.cfm? fid=BB6205EC439DB9CA66EFF2CD9FA672DACEB9EA43781E8DE25FA
765C875871FF73D48702D3A8AF6EBFB864311B5B32FA9255C206566
3DE347B07504235A4E54B4
Volker's monetarist experiment was a unmitigated disaster
written by Amileoj, May 29, 2014 4:25
Pete:

A few points in response to your "But where did the low rates come from..." comment:

1. Actually lower rates, when they came, were pretty much a deliberate policy target. Volker's monetarist experiment was over by October of 1982, which is when rates dipped back below the 10% threshold.

2. It was not Volker's quantity targets which reduced inflation. Much if not all of the reduction achieved by October of '82 was due to an easing of oil and (thus) food prices.

3. The quantity targets, meanwhile, devastated the U.S. economy, in particular the industrial sector, so I'm not sure in what sense we are supposed to be 'thankful' for Volker having 'prevailed.'

See: http://www.nytimes.com/1982/10...ostly.html

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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