Tuesday, January 19, 2016

State of the Union: The Data

How is the U.S. economy doing right now? Data helps. But keep in mind that journalists may not understand the data that well, and then if there’s a graphic sometimes it will get corrupted by artistic concerns. After principles, you are at the point where you should start picking up problems with data that’s presented to you. Check out this graphic:

16-01-12, WSJ Capture on the US Economy

This data was reported to summarize the performance of recent presidents in their 8th year. Except that it forgets about Bush I everywhere except the bottom panel – which shows approval rating rather than economic data. You’ll have trouble getting the economics right if you can’t consistently include all the presidents.

Also, keep in mind that presidents probably don’t do much to influence the economy. So it’s a good way to group year’s together … but don’t read too much into it.

Let’s start at the top left. Presidents are probably not responsible for the recessions that happen to occur when they’re in office. This makes Clinton look better than he was (the economy has almost 2 years to get going after the recession before he came into office). And Bush II inherited a recession, before he got hit with a second one, and that probably makes him look worse than he was. Slope over the majority of that graph is probably the best way to compare them. On that count, Clinton and Reagan look better than either Obama or Bush II. By the way, most of that memory of Reagan being so great is that steeper portion in the middle of his tenure.

Now go to the top right. This shows stock market indices. One of the things you should learn in this class is that you probably shouldn’t look at this at all for any macroeconomic insight: too many false positives and false negatives. And that goes both ways: using the stock market to predict the economy, or the economy to predict the stock market.

Now go to the middle left. You’ll note that consumer confidence roughly tracks the employment data directly above it. So there’s not much new here.

Digression: macroeconomists are not sure what to make of consumer confidence. It’s human nature to want to explain recessions with one or a few variables, but instead it seems to require a big list. Consumer confidence is on that list. But the only recession where it seems to have been the primary factor was the one in 1991-2. And that’s not shown in the chart!

Lastly, go to the middle panel on the right, which shows gas prices. This is an easy one: it doesn’t say adjusted for inflation, so these are nominal prices of gas, not the real price. So this is close to useless. Of course, gas costs more under Obama and Bush — the dollars used to pay for it aren’t worth as much.

All in all, it’s kind of sad (because some journalist probably worked hard on this), but a good student should recognize that … there isn’t much here. Democrats will not be happy to see that Obama doesn’t look much better than Bush II. And Republicans will not be happy to see that Clinton outdid Bush II, and was more than comparable to Reagan. I think both of those assessments are accurate, but there’s a lot of other data that could have supported that position.

This chart accompanied an article called “Obama to Note Work Yet to Be Done” that appeared in the January 12 issue of The Wall Street Journal (in preparation for his last State of the Union address).

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