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.

Saturday, October 28, 2006

The Economist Gets a Base Hit

On the other hand, here is the Economist doing what the Economist does well:

Free exchange | Economist.com: IT IS HARD to contemplate the new US GDP figures without a mental image forming of Republican campaign strategists rolling around on the ground, gripping their bellies and moaning "It hurts! It hurts!" Second quarter GDP growth was a lacklustre 2.6% (annualised), well below economists expectations. This morning (this afternoon, here in London) the news came that America's economy had disappointed again, growing by just 1.6% in the third quarter, rather than the 2.2% that economists had been expecting. There has been a tepid attempt to bring up the Dow's record levels, but this has fallen rather flat: the record isn't a record if you adjust for inflation, and anyway, the Dow isn't a very good proxy for economic health, or even investor confidence. It has only thirty companies in it, and these are weighted by cost rather than market capitalisation, which means that it is easily blown about by outsized movements in the prices of a few stocks. The S&P 500, which is much more representative, is still well below its 2000 peak.

In the New York Times on Tuesday, Eduardo Porter wrote This Time, it's Not the Economy:

President Bush, in hopes of winning credit for his party’s stewardship of the economy, is spending two days this week campaigning on the theme that the economy is purring. “No question that a strong economy is going to help our candidates,” Mr. Bush said in a CNBC interview yesterday, “primarily because they have got something to run on, they can say our economy’s good because I voted for tax relief.”

But Republican candidates do not seem to be getting any traction from the glowing economic statistics with midterm elections just two weeks away...

We'd suggest that this is because the statistics, like GDP, are not actually glowing; in fact, they're barely emitting enough light to check your watch by. Even fantastic headline numbers, like 4.6% unemployment, disguise weak wage growth and sagging labour force participation. Perhaps even more problematically for the Republicans, what growth there is isn't being felt by the average voter. Companies are increasing compensation--but they're spending it on benefits like health insurance, which doesn't feel the same as a wage increase even if you're one of the unlucky few who gets a $100,000 cancer treatment out of it. And income growth is concentrated among the wealthy, who are too few to swing an election...

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