Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Sunday, June 04, 2006

Sweet (Macro) Statistics Clash With a Sour (Micro) Mood

Daniel Gross has a good "Economic View" column in the New York Times:

When Sweet Statistics Clash With a Sour Mood - New York Times: [I]n the latest New York Times/CBS News poll, only 28 percent of the respondents said they approved of President Bush's handling of the economy, while 66 percent disapproved -- the worst such ratings of his presidency. Only 6 percent rated the economy as very good, while 46 percent said it was fairly bad or very bad. And consumer confidence plummeted last month, according to the Conference Board.

This strange and unlikely combination -- strong and healthy aggregate macroeconomic indicators and a grumpy populace -- has been a source of befuddlement to the administration and its allies.... Bush partisans... frustration at the public.... Rudolph W. Giuliani bluntly dismissed concerns about the economy and higher gas prices by saying, "I don't know what we're all so upset about."

Gas prices and the Iraq war have surely contributed to this disconnect. But a lesser-known factor is also at work: the misleading aggregates.... [M]any of the most popular aggregates are simply misleading. Dean Baker... [on] the Consumer Price Index.... [T]he index doesn't take account of rapidly rising co-payments and higher insurance deductibles when it calculates health and medical costs. And to gauge inflation in housing, the index approximates a measure of rent instead of looking at home purchase prices....

[A]ggregates... are averages, which are of declining utility in an economy characterized by greater inequality of income and assets.... To see how typical workers are doing, it's better to look at median wages and incomes -- the midpoint that separates the top 50 percent from the lower 50 percent. And median income, which was stagnant during President Bush's first term, is struggling to keep pace with inflation. "Median household income has gone nowhere since the turn of the decade," said Mark Zandi, chief economist at Moody's Economy.com.... From 2001 to 2004, the average net worth of an American family rose 6.3 percent, according to the Federal Reserve's Survey of Consumer Finances. But not everybody grew richer. For the bottom 40 percent of families by income, the median net worth fell...

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