“Rodney Dangerfield Economy”
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Social Education 70(2), pg 76–78 ©2006 National Council for the Social Studies Strong Numbers and Weak Perceptions: Understanding the “Rodney Dangerfield Economy” William C. Wood Ordinary citizens, politicians, but also here the news is good. The complementary and some contradic- and economists alike regularly ask the unemployment rate stood at 5 percent tory: question, “How is the economy doing?” near the end of 2005, below the 20- With a highly polarized electorate and year average of 5.7 percent and far The statistics are wrong. There are media to match, it has become harder below recession levels.3 1 widely documented defects in all to get an honest answer. Social educa- It quickly becomes clear that no of the numbers we use to gauge the tors should understand the complexity one figure can fully capture the com- economy’s health.7 GDP misses out on of the question—and the subtlety of the plexity of a $12 trillion-plus economy. the unreported activity of the “under- answers—as they approach the topic The most commonly used measure that ground economy”; inflation numbers themselves. combines two figures is the “misery do not adequately account for qual- The economy is doing quite well index,” attributed to economist Robert ity changes; the unemployment num- by most measures. The Gross Domestic Barro. This index is the simple sum of bers miss some people who are out of Product (GDP), our best overall indi- the inflation rate and the unemploy- jobs. Yet, even all these defects cannot cator of economic activity, has been ment rate. Currently it stands at about account for the current perceptions gap. growing smartly since its last downturn 8.5 percent, below the 20-year average Some of the defects, if corrected, would in 2001. of 8.7 percent.4 actually make the economy look bet- GDP measures the market value Compared with our European ter. Inflation, for example, is thought of all final goods and services pro- trading partners, the U.S. economy is to be understated because of overall duced in a year’s time. According to a far stronger. The major economies of quality improvement (notably, in fields widely quoted approximation, Okun’s Europe have been growing at below 2 such as consumer electronics). Other Law, about three percent real growth percent, keeping unemployment stuck defects, while real—such as the inability is necessary to keep employment con- above 8 percent.5 of unemployment numbers to capture stant.1 Since the 2001 recession ended, And yet with all these favorable all the jobless—were also present years the U.S. economy has been consistently statistics, millions of people report ago when the numbers were much worse. beating that threshold and its own long- that they are feeling economic dis- The same defective measure looks better term averages. Over that period real tress. Social scientists are unlikely to now than then. GDP growth has averaged 3.7 per- conclude that so many people are just cent, well above the 20-year average wrong, and so the hunt is on for expla- Partisan politicians and media of about 3.2 percent.2 Growth is even nations. Why are we currently living 2 make the economy seem worse stronger for the past two years, suf- in what the Wall Street Journal calls than it is. There is some truth in this ficient to allow for substantial growth the “Rodney Dangerfield economy” explanation. For example, then-candi- in overall jobs and incomes. (named after the comedian who “got date John Kerry claimed in September Some believe that the unemploy- no respect”).6 At least four explana- 2003 that the U.S. was suffering “the ment rate is more important than GDP, tions present themselves, some of them greatest job loss since the Great S OCIAL E DUCATION 76 Depression.” A nonpartisan fact-check- ing group based at the University of Pennsylvania’s Annenberg Public Policy Center found that claim, even on the narrow technical grounds used by the Kerry campaign, to be incorrect.8 The number relied on was the 2.7 million jobs lost between February 2001 and August 2003—a smaller job loss than in the recession of the 1980s and, to be fair, a smaller percentage of the population, which had grown substantially over the intervening 20 years. Overall, however, there is no sat- isfying explanation in the behavior of partisan politicians and media. Just as the opposition has a motive to exagger- ate how bad the economy is, the party in power has reasons to emphasize how Ford Twin Cities Assembly Plant workers, from left: Chuck Lines, Denny Dickhausen, good it is. (The same fact-checking group Sylvia Rutledge and Flora McCloud, listen as union officials hold a news conference the that found the Kerry claim misleading same day, Jan. 23, 2006, that Ford Motor Company announced it plans to cut 25,000 to 30,000 jobs. Competition from imports has provided more access to high quality reported that a recent advertisement cars, but autoworkers are losing income and job security. The St. Paul, Minnesota, plant supporting President Bush “misstates escaped initial plant closings. (AP Photo/Jim Mone) facts to puff up Bush’s record both on the economy and Medicare.”9) In a time of more partisan media, there will also to everyone, is everyone equally better was much less important; airline work- be media voices to echo the claims. off? Probably not, in that the increased ers’ jobs at the so-called legacy carriers money could well lead to inflation that date back to a time before the low-cost The hedonic treadmill. Psycho- would eat up some or all of the gain. competition arrived. Autoworkers and 3 logists and economists studying This is often illustrated in classrooms airline workers are in the process of los- reactions to increased income have using the equation of exchange.11 ing substantial income and job security, developed the concept of “the hedonic The opposite fallacy is to assume even as competition provides greater treadmill”—the idea that one has to run that what’s true for the economy is true access to high-quality cars and air travel faster just to stay in the same place.10 The for the individual. This line of reasoning for most consumers. reasoning is that people seem to judge would say that if the economy is growing What could be done to help people their well-being not by their own stan- fast, everyone’s income is growing fast. be happier in a growing economy that dard of living, but by how it compares And yet the aggregate GDP statistics tell “gets no respect”? Greater understand- with some reference level. The refer- us nothing of the kind. Rapidly increas- ing of the statistics might help, but no ence level could be set by neighbors’ ing national output can occur along with abatement in the spinning of numbers standard of living or an economy-wide increasing inequality, if most of the by politicians and commentators should average. In either case, evenly distrib- growth occurs in sectors where people be expected. The hedonic treadmill may uted growth would leave everyone in are already well off. be a contributor to reduced happiness, the same place relative to the reference Some economic indicators suggest but it’s hard to tell people not to measure group, having a higher standard of living that recent growth has been accompanied their standard of living relative to that of but no greater happiness. by increases in inequality.12 Therefore, it others. On the policy front, it is difficult is possible for many people to be worse to come up with interventions that can The fallacy of decomposition. off even as economy-wide totals are preserve security of jobs and income 4 Teachers of macroeconomics are improving. Times have been difficult when technology makes competition quick to point out the fallacy of com- for workers whose well being depended national and global. position: incorrectly inferring that what on an absence of competition for their From a long-term perspective, “our is true for the individual is true for the employers and industries. Big Three grandfather’s economy” of the twentieth economy. If any one household receives (Ford, Chrysler, and General Motors) century was not sustainable. It depended $100, it is better off. But if the govern- auto workers’ jobs were structured at a on corporate employers and govern- ment prints and hands out new $100 bills time when competition from imports ments promising more, in the form of M ARCH 2 0 0 6 77 ployment rate, the Misery Index is easily calculated. retirement security and access to medical prepare for a more demanding environ- Historical and recent figures are provided by NPA care, than could be funded. In the case ment. The best individual response to Data Services, Inc., of Arlington, Va., online at www. of corporate employers, competition the challenges of the economy may over- miseryindex.us. 5. Comprehensive statistics on the economies of Europe from leaner rivals enabled by informa- lap with the best policy response: invest- are available at the website of the European tion technology prevented the old-line ment in human capital, or the skills and Commission’s statistical agency, Eurostat, europa. industrial model from surviving. In the abilities that people have. People who eu.int/comm/eurostat/. 6. “Rodney Dangerfield Revisited,” The Wall Street case of governments, the demographics have developed the adaptability to be Journal (December 30, 2005) www.opinionjournal. of the baby boom made Medicare and productive in a technological world will com/editorial/feature.html?id=110007749.