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Home Publications Blogs Beat the Press NYT Is Badly Confused on the State of the Economy

NYT Is Badly Confused on the State of the Economy

Wednesday, 08 January 2014 05:05

Those who hoped to be informed about the state of the economy by reading this NYT piece on President Obama's renewed focus on the economy made a bad mistake. The piece implies that the economy is largely back to normal except for pockets of people who have been left behind. For example it tells readers:

"He is presiding over an economy that has improved sharply in the five years since 2009, when it was buckling under the weight of a severe recession, but decades-long shifts in technology and globalization have left more people out of work for extended periods than at any other time in the past 50 years.'

The piece then adds:

"Like Mr. Obama, President Ronald Reagan also ended his fifth year with unemployment at 7 percent after a devastating recession. But Mr. Reagan was sunnier in public as the country’s financial fortunes turned around, and ran for re-election in 1984 with an advertising campaign that declared 'It’s morning again in America' for a country weary of economic distress. Mr. Obama has chosen to be more restrained in his enthusiasm."

It is not just a question of sunny disposition. By the beginning of 1986 the economy had 7.8 percent more jobs than it had in its pre-recession peak in July of 1981. By contrast, the number of jobs is still 1.0 percent below its pre-recession peak in January of 2008. The same story can be seen looking at the ratio of employment to population (EPOP). In January of 1986 the EPOP was 0.6 percentage points above its pre-recession peak. By contrast the EPOP is now more than 4.5 percentage points below its pre-recession peak. This corresponds to more than 10 million fewer people working.  By any reasonable measure the economy is in far worse shape today relative to its pre-recession level of output than it was in January 1986.

The assertion that people have been left out of work due to a "decades-long shifts in technology and globalization" is not supported by evidence. If there is reason to believe that most of the unemployed would not find work if the economy returned to its level of potential output (we are still down by more than 6 percent [$1 trillion annually] according to the Congressional Budget Office) the NYT opted not to show it.

In other words, the most obvious reason these people are unemployed is that the government is running macroeconomic policies that are keeping the economy far below its potential level of output, not some inexorable trend in globalization or technology. The latter view may absolve policy makers of blame for the plight of these people, as well as the lack of wage growth for the much larger group of people who are employed but not sharing in the economy's growth, but it is far from obvious that it correctly describes the economy. It is irresponsible of the NYT to just assert it as fact.


Note: Typo corrected, thanks Robert Salzberg.

Comments (6)Add Comment
Typo correction
written by B, January 08, 2014 5:04
"By the beginning of 2006 the economy had 7.8 percent more jobs than it had in its pre-recession peak in July of 1981."

I suspect 2006 should say 1986
written by Scott, January 08, 2014 5:34
Wouldn't know also be a good time to point out that the size of government grew during Reagan's term while it shrunk during Obama's. Austerity has hurt the recovery and kept people unemployed.
Do Sock Puppets Ever Look in the Mirror?
written by Last Mover, January 08, 2014 5:52

Krugman just posted on this in the context of long term poverty at his NYT blog:
The trouble is that the American right is still living in the 1970s, or actually a Reaganite fantasy of the 1970s; its notion of an anti-poverty agenda is still all about getting those layabouts to go to work and stop living off welfare. The reality that lower-end jobs, even if you can get one, don’t pay enough to lift you out of poverty just hasn’t sunk in. And the idea of helping the poor by actually helping them remains anathema.

Sock puppets of the rich are so desperate to explain what is squarely before their eyes - with baldface lies - they embarrass themselves with each escalation.

"Shifts in technology and globalization" are what caused it? And the only word on the great recession is that it has improved sharply since 2009 in terms of positive growth compared to the technical negative measure of annual growth that qualifies as a recession?

That's about as stupid as saying the potholes in the road are caused by the long term effects of rain, instead of saying they are the result of willful lack of road maintenance to fill them up despite thousands of available idle workers and equipment to do it.

Stand your ground America. Don't let potholes take your opportunity to get good jobs. Look upwards, wave your hands and declare that the sky shall not fall again with rain that creates potholes.

Either that or get a better education and skill set that allows you to avoid the potholes. Never mind that you won't get a job anyway for lack of aggregate demand.
written by djb, January 08, 2014 8:01

and under reagan i believe that government spending went way up??

written by skeptonomist, January 08, 2014 9:03
The idea that globalization is not involved is absurd. Manufacturing jobs have moved out of the US, period, and there is no question about the reason; people in developing countries are willing to work for far less because their standard of living is lower than that of US workers. How "inexorable" the actual process has been is the real question. The process has basically been under the control of capitalists and by a strange coincidence corporate profits in the US are at record highs as a fraction of GDP. Ideally the standard of living in third-world countries would be raised while retaining that in the US, but corporations make the highest profits by flattening wages worldwide at a low level. Dean and others think that adjusting exchange rates would by itself solve all problems of international trade, but even if this eliminated trade balances - and there is no empirical evidence that it would - the problem is much more complicated than trade balances. Maximizing GDP in the world or even in an individual country will not solve all such problems. There is also no reason to believe that free markets have magical powers that would rapidly even out the living standards of people throughout the world painlessly. The solutions, if they exist, are not in economics textbooks, which largely contain oversimplified and unsubstantiated dogma.
written by watermelonpunch, January 08, 2014 10:23
but decades-long shifts in technology and globalization have left more people out of work for extended periods than at any other time in the past 50 years


Because they're ignoring all the crap that's gone down to make it this way?

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About Beat the Press

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.