'Journal' is selective with its data


On Aug. 27, the Bureau of Economic Analysis revised down the growth rate of the U.S. economy for the second quarter from 2.4 percent to 1.6 percent.

Is this growth anemic at this stage of the business cycle? The Wall Street Journal certainly thinks so. However, its reasoning required some judicious use of the data.

Their argument that today's recovery is weak was supported by the growth figures from 1983 in the aftermath of the 1981-82 recession. GDP growth was 5.1 percent, 9.3 percent, 8.1 percent and 8.5 percent in the first four post-recession quarters of 1983.

In contrast, the growth rate of the economy in the past four quarters (given that most economists think the recession ended in June 2009) was 1.6 percent, 5.0 percent, 3.7 percent and the revised 1.6 percent.

Why did the Journal choose the 1981-82 recession? There have been two other recessions since the 1980s; why didn't it present recovery data from those recessions?

The Journal 's answer: The 1980 recession was the last time unemployment was at 10 percent, but an alternative possibility is that the data from the 1990-91 recession and the 2001 recession do not support their argument.

For example, the four quarters after the end of the 1990-91 recession saw growth rates of just 2.7 percent, 1.7 percent, 1.6 percent and 4.5 percent. Growth rates after 2001 were 3.5 percent, 2.1 percent, 2.0 percent, and 0.1 percent.

The economy over the past year has actually recovered faster than in the last two recessions though obviously not as fast as in the 1980s.

So why was the recovery faster in the 1980s? Again the Journal 's answer included falling tax rates and exploding business investment. However, didn't tax rates fall after the 2001 recession with the "Bush Tax Cuts," which are due to expire next year?

The 2002 growth figures represent the slowest recovery from the last four recessions which coined the phrase the jobless recovery.

Did business investment explode in the early 1980s?

Business investment in structures, equipment and software decreased in the first quarter of 1983 by 7.3 percent, then increased by 5.0 percent, 19.3 percent and 28.5 percent.

By contrast the increases over the past four quarters have been -1.7 percent, -1.4 percent, 7.8 percent, and 17.6 percent.

Certainly not as good as the 1980s, but the figures for 2002 are even worse -- -9.0 percent, -6.3 percent, -2.0 percent, and -7.3 percent. (1991-92 figures are also worse than the current figures, showing decreases in all quarters.)

Much of the 1980s exploding investment was in residential housing, which led to a small property boom I don't think we want to revisit. Left unmentioned by the Journal , because it goes against its political and economic stance, was that government spending was increasing at rates faster than today.

Maybe what we need to achieve 1980s-like growth is a new cold war and increased military spending!

I don't know, but I do know attributing growth rates to specific variables is a lot harder than the Journal makes out.

So overall, I would agree with the Journal 's editorial team that the current recovery is slower than the 1980s. But to pick and choose a time frame that provides data to support your hypothesis and to conveniently disregard other pertinent information is bad science and bad economics. (It may be good editorializing and politics though).

I encourage readers of The Augusta Chronicle to look up the data from the Bureau of Economic Analysis' Web site to determine for themselves the pace of the current recovery compared to previous recoveries.

Simon Medcalfe is a professor at Augusta State University.


Sat, 09/23/2017 - 16:49

Chamber Corner