Sunday, April 11, 2010

Glass Half Full

Over at Slate, Daniel Gross has penned an article putting forth a positive take on the eventual (progressing?) economic recovery from "the Great Recession."

In the end, Gross' entire point seems more emotional than economic, and it trots out a number of tropes as "evidence" that strike me as suspect. Now - my point isn't that the naysaying "elite—left, right, and center" are correct. It's just that Gross' refutation of them isn't particularly convincing. Gross' argument? In a nutshell: "Some people are pessimists. They're wrong. I'm an optimist. I'm right." The first issue that I have with his argument is that once you arrive at the end, it rests on this: "If the United States continues to adapt as it has, and if it produces a few more game changers like Google and Apple[...]." The problem? Since this is at the very end of the piece, there's no space devoted to examining these rather non-trivial "ifs." And, if you read carefully, they aren't the only ifs.

"If the U.S. economy grows at a 3.6 percent rate this year, as Macroeconomic Advisers projects[...]"

"If these impulses [adaptability, inventiveness and resilience] are embraced more systematically and wholeheartedly[...]"
These ifs are important, and I think that it's a significant omission that they aren't explored more deeply. What does it take for the economy to grow at 3.6 this year? Who's Macroeconomic Advisers, what are they basing that prediction on and why should we believe them? What needs to be in place for a "game changing" company to barge onto the scene, and will those factors produce such a company before, say, the next presidential election? (Sure, there will be other game changers in the future - but if we won't see the next one until 2050, that doesn't really do anything for us now.)

Part of it is a lack of prediction. Simply saying that someone's a pessimist doesn't tell us what they expect to happen, except that by some standard, it will be lacking in some way. If we flash forward five years, what are the expectations? What do Gross' doomsayers expect to see? And what, for that matter, does Daniel Gross expect to see out of the economy by 2015? Where will the DJIA be? What will the unemployment rate look like? What will be the GDP? Saying that such predictions have little value because they're often wrong is beside the point - it's the difference between the prediction and the actual reality that determines if one was being optimistic or pessimistic in the first place. Right now, no matter what happens, both sides can claim they called it. The doomsayers can say the recovery should have been stronger and Gross can counter that it was stronger than one might expect. Now, before you remind me that Gross doesn't just blow off telling us what the future would be like, I realize that he does throw us a bone in that regard - just not a very meaty one. His "what will our new economy look like once the smoke finally clears?" presents mindless platitudes. "[F]ewer Hummers and more Chevy Volts," huh? My Magic Sacrastic Ball could have told you that, considering that Hummer has been discontinued and the last I knew, efforts to sell the brand to a Chinese firm fell through. I don't know that the Volt will be the hottest car on the block, but one hopes it can outsell a defunct brand.

As for the fact that there has been a doom-and-gloom outlook on the part of some in the United States since before there was a United States, so what? It's a pretty safe bet that predictions of the demise of the nation that didn't pan out are thick on the ground. Considering the fact that here in Seattle, the weatherman can predict rain and you wake up to a sunny day, it's pretty remarkable to expect people to accurately predict the fate of nations. But the more salient issue might be that despite the fact that Gross trots out a number of incorrect predictions, he never explains WHY they were wrong. If "Progressives returned from Mussolini's Italy convinced that Il Duce had a superior economic model," why did they get it wrong? What did they not know, and how does that relate to today's presumably erroneous prognostications? After all, if I declared, simply on the basis of a failure to predict rain in Seattle, that Meteorology was junk science, I'd have to present a little more evidence.
"In the first quarter of 2009, the economy was shrinking at a 6.4 percent annual rate. By the fourth quarter it was growing at a 5.9 percent rate. Consider the scope of that swing: The growth rate of a $14.5 trillion economy shifted by 12.3 percentage points in about nine months."
First off, is that assumption even accurate? The economy didn't shrink 6.4 percent in Q1 or grow 5.9 percent in Q4. (And that second number? Gross also isn't above picking and choosing to back his case. Given that the Bureau of Economic Analysis issued three reports on GDP growth in Q4 of 2009, each with a different percentage, guess which one Gross used. Hint: it wasn't the most recent one.) These numbers are annualized. Now, I could be very wrong here, but - my understanding is that this means: A) you're assuming a linear trend and B) the percentage given is what you would get after an entire year of that trend. So it seems to me that taking the difference between the numbers, and claiming that as the actual annual rate of change isn't correct. And there is an unspoken assumption here, that the shrinking and growth have the same 0 point. But this is never stated. And according to the Bureau of Economic Analysis report... well, I can't make heads or tails of that - in the section 2009 GDP it says: "Real GDP decreased 2.4 percent in 2009 (that is, from the 2008 annual level to the 2009 annual level), in contrast to an increase of 0.4 percent in 2008." But it also says: "During 2009 (that is, from the fourth quarter of 2008 to the fourth quarter 2009), real GDP increased 0.1 percent." So I guess the BEA report has something for everybody. But what it doesn't have is 12.3 percent, anywhere. Something tells me there is important information in the second and third quarters that may have been left out of Gross' analysis.

Anyway, this has gone on long enough... there are other problems I have with the way Gross structures is argument. He points out "In the short term, the ruthless pursuit of efficiency translates into the uncomfortable—and unsustainable—dichotomy of rising profits and falling employment." But then goes on to say that a contract with BigBelly Solar, "has allowed Philadelphia to cut weekly pickups from 17 to five and will save it $13 million over 10 years. BigBelly employs fewer than 50 people, but like many businesses in fast-growing markets it indirectly supports a much larger number of jobs." Okay - but without telling us how many jobs were lost (directly and indirectly) when Philly nixed more than two-thirds of it's weekly pickups (that number is unlikely to be 0), you can't just assume (and Gross is far from the only offender here) that the BigBelly contract represents a net gain in jobs. The list goes on, but now I really will stop picking at it, rather than spinning it out simply for completeness sake.

From where I sit, the issue is that Mr. Gross wrote a single long piece, rather than a number of shorter ones, where he could take each point in turn, and really lay out what he thinks is going to happen, and predicate those predictions on solid evidence. Ambitious ends require ambitious means, and that seems to be lacking here.

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