Cross-Posted at My Left Wing
Last night Fox news had a spokesman from the American Enterprise Institute on to tell everybody the economy was in great shape. Considering Fox news is the propaganda arm of the Republican Party, I am sure these talking points will be spouting forth from various rightwing pundits today. So, here are the facts, not the spin. I debunk. You decide.
The central theme was "why are so many people giving Bush a poor approval rating on the economy?" The pundit had three reasons.
The Iraq war: OK. Score one for this guy because he got something right. War creates uncertainty. People as a rule prefer certainty over uncertainty.
There is a lag time between when the economy starts to improve and people accept that improvement. According to official government statistics provided by the Bureau of Economic Analysis, GDP started to really pick-up steam in the first quarter of 2003, two and a half years ago. A year I can accept. A year and a half, maybe. Two and a half years of lag time between when the economy starts to statistically do well and people start to notice? Utter bullshit.
The price of oil. Hey, he got another one right. This concerns people. But, this guy went on to say the price of oil will fall soon. That is a complete and total lie. According to first year economics, when demand grows faster than supply, prices increase. Consider OPEC is already producing near capacity and refineries are operating near 100% capacity. The current oil output is near its maximum level. At the same time India and China are growing at very strong clips, along with the US. Europe and Japan are starting to pick-up steam as well. This means that demand will increase when supply is near maximum. That means prices will continue to increase.
Finally, this guy has only 1 concern about the economy. There are a few real estate markets that are slightly overheated. Well, according to the FDIC, that is an understatement. In a report titled "US Home Prices, does Boom Always Follow Bust?"
The report defined a "boom period" as "as one in which inflation-adjusted prices rose by at least 30 percent in a three-year period and a "bust period" as "markets in which home prices had declined by at least 15 percent (in nominal terms) over a five-year span." I should note that definitions such as these are by definition arbitrary. Based on different criteria, the results would obviously be very different. But, these numbers appear to me to be pretty fair.
The report continues, by noting "Based on this definition, some 63 cities had experienced a boom at some point in the last 30 years, and 33 cities were experiencing a boom as of the end of 2003
So, "A few cites experiencing a bubble" is an understatement of the situation.
Here's the central problem that's occurring with the economy right now. People's personal experience with the economy is negative while the macro-numbers are positive. People respond to polls with their experience.
How can I saw with confident that people's experiences are negative?
People incomes have not increased in 5 years: According to the Bureau of Labor Statistics, the average earnings increase from 2000-2004 was 3.86%, 3.22%, 3.12%, 1.71% and 2.39% respectively. However wages have to be compared to inflation to determine the real rate of wage growth. For the same years, annual inflation was 3.4%, 2.8%, 1.6%, 2.3% and 2.7% respectively. When inflation is subtracted from wages, overall wage growth becomes .46%, .42%, 1.52%, -.59% and-.31% respectively for 2000-2004.
The unemployment number is too low by at least 1%: For more information, read this report from the Boston Federal Reserve. Or this one from the Congressional Budget Office
Good paying jobs are hard to find. According to the Bureau of Labor Services, the US has lost 3.4 million high-paying jobs in the last 5 years, 2.8 million in the manufacturing sector and 600,000 in the technology. Replacing these are lower-paying retail, food service and health care jobs. As Baron's noted in their latest issue: "It looks like the U.S. economy is now dominated by housing, shopping, eating and drinking (with some help from very expensive health care). These don't look like core productive sectors"
In short, people are negative about the economy because good-paying jobs are harder to find, driving down wages for everybody. For all their spin, the Republicans will have a difficult time telling people that individual perception is somehow wrong.