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Friday, June 20, 2008

The Economy Stinks Because They Say It Does.

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Hat tip to Michael Novak over on The Corner for this story detailing how the media distorts its reporting of news about the economy based on which party is in the White House.

Why has so much of the media accepted the deep recession story when the data is so mixed? The most plausible explanation is that many are motivated by political bias.

Economist John Lott and I studied thousands of economic news stories written over the past 30 years or so, and found that coverage tended to be far more negative when there was a Republican in the White House as there is now.

The bias has an easy explanation. Yale University economist Ray Fair has shown that a weak economy hurts the incumbent party. If a Democratic-leaning press can convince everyone that the economy is in recession, then it can influence the election.

Our analysis indicates that the treatment of the economy would be much different if there were a Democrat in the White House today. If so, then the headline of each bad piece of news would be, more accurately, "Economy Hovering Above Recession."

But instead of that, we get doom and gloom.

The politically motivated pessimism, like the computer virus, can have real consequences. While the economic data has been mediocre, consumer sentiment, as measured by the Conference Board, has been driven by the negative drumbeat to its lowest in 16 years. Negative sentiment might well slow spending enough to give us a textbook recession in the second half of the year.

But another possibility lurks behind the numbers. The Federal Reserve and Congress have delivered a ton of economic stimulus, and that stimulus is set to juice up an economy that has been weak, but not terrible. If everything goes according to plan, the economy will grow faster in the second half of the year, and a recession will have been avoided.

If we follow that path, then you can bet that the media won't admit it until Nov. 5.

Even in years when the msm is not as completely enamoured of the Democratic nominee as they are with Barack Obama, their reporting of the performance of the economy remains skewed. Is it any wonder then that this year, in which the economy is weak, but demonstrably not in a recession the msm rarely give us insights like the following:
Over the past two quarters, the annualized growth rate was about 0.7 percent, almost double the growth rate of the shallowest recession on record.

Consumption has been holding up as well. Annualized real consumption growth over the first two quarters of a postwar recession is 0.2 percent. The maximum annualized growth rate over the first two quarters was 2.8 percent, posted during the 1969-70 recession. The minimum growth rate over the same time frame was negative 4.7 percent, which was posted during the recession of 1980.

The annualized growth rate over the past two quarters has been 0.8 percent, not the best on record, but roughly four times higher than the typical post-World War II recession.

A pessimist might argue that the jobs data has been terrible this time, right?

Think again.

Job Losses

The average change in non-farm employment during the first six months of a postwar recession is negative 387,000. The maximum employment loss was slightly more than 1 million during the recession of 1948-49. In the recession of 1973-74, employment actually rose 690,000. That's a wacky number for a variety of reasons. If we exclude it from the calculations, then the average post-war recession began with a drop of 506,000 jobs.

The employment loss since December 2007 has been 324,000 jobs, way below that average.

Barack Obama is spending a good deal of his efforts running against the "Bush economy" as if it were almost as awful as Reaganomics (a term that fell out of favor with the press when Reagan's economic policies actually kicked in and started to work) but in fact the economy continues to grow, even now, albeit slowly. Don't expect the media to correct him anytime soon.

1 comment:

Aurora said...

Unfortunately the worldwide media has found out how to lead the events and people of nations around by a nose ring. That the media has this kind of power is a sign and symptom of a decrepit, unthinking society. And it undermines democracy. They decided who would win the last election in Australia as well. It was clear for months before the actual event.