Are All Republican Talking Heads This Economically Inept?

Over the last few weeks we've seen two news stories that have demonstrated how out of touch the right wing media is.

Let's start with the Phil Gramm comment. According to Gramm we're in a mental recession and are a nation of whiners. Within a few hours several right wing bloggers and talking heads rushed to his rescue to defend the comments. Among those are Ed Morrisey at Hot Air, Newsbusters, Mike Gallagher and Red State. According to all Gramm's comments were right on target -- in other words we are a nation of whiners and the economy isn't as bad as we think it is.

Most right wing talking heads are relying on the following definition of recession:

A significant decline in activity spread across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP)

Right wing people are correctly pointing out the US has not had two consecutive quarters of negative growth. Therefore everything is OK, there is no recession and talk of such is bunk.

However -- look at the first part of the definition which states, "A significant decline in activity spread across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade." This is from the definition used by the National Bureau of Economic Research which is the organization that officially dates recessions. Here is the complete NBER definition:

The committee places particular emphasis on two monthly measures of activity across the entire economy: (1) personal income less transfer payments, in real terms and (2) employment. In addition, we refer to two indicators with coverage primarily of manufacturing and goods: (3) industrial production and (4) the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes. We also look at monthly estimates of real GDP such as those prepared by Macroeconomic Advisers (see http://www.macroadvisers.com). Although these indicators are the most important measures considered by the NBER in developing its business cycle chronology, there is no fixed rule about which other measures contribute information to the process.

Let's look at each of the statistics mentioned above to see what they say:

personal income less transfer payments, in real terms

Here is a chart of real income from Econoday:

But Bonddad -- look at that jump in incomes! We must be doing great!

Actually, no. That's the effect of the stimulus checks. As Marketwatch reported:

Personal incomes rose 1.9% in May, the largest gain since September 2005, when insurance payments from hurricane damage flooded into bank accounts. The increase was close to the 1.5% gain expected by economists surveyed by MarketWatch. See Economic Calendar.

Real disposable incomes (after taxes and adjusted for inflation) increased 5.3%, the biggest increase since 1975, when the government also sent out rebate checks. Read the full report.

Excluding the impact of the rebates and inflation, real disposable incomes were flat.

Remember -- the NBER is looking for incomes without transfer payments. That means the stimulus checks don't count. The NBER is measuring the effects of the total economy without the help of government inputs. That way, the measurement measures the private sector without government help.

So -- without the government stimulus we have no gain. Looking at the year over year percent change in personal real income we see a solid decline since July of last year. That's recessionary, plain and simple.

employment

Here are two charts from econoday:

Job growth has been declining on a year over year basis for about two and a half years, and

Unemployment has been ticking up since the beginning of last year. In other words, the long term trends in employment are recessionary

industrial production

Industrial production has been dropping for awhile,

And capacity utilization is dropping, indicating we're using less of our manufacturing resources

Both the NY and Philly Fed manufacturing indexes have made a poor showing over the last 6 months.

And the ISM manufacturing report has been dropping since 2004. However, note this index ticked above 50 last month. But this was the first time it showed a reading about 50 in 4 months. In addition, this number has shown a recessionary reading for 4 of the last 6 months. In other words -- we'll need to see a stronger move above 50 and a longer move above 50 before we can say this number is improving. However, given that all other industrial indicators are in poor shape, the possibility of this number improving is pretty small.

"the volume of sales of the manufacturing and wholesale-retail sectors adjusted for price changes"

The inventory number has been less important for one very important reason: with the advent of just in time inventory management and its continual refinement over the last 25 years, businesses are far more adept at operating with little to no inventory. As such, wholesale sales are less important. However, in the interest of completeness, here is a chart from the St. Louis Federal Reserve of real inventories

Notice this number has been dropping for about a year and a half.

So -- according to a far more detailed analysis of the economic statistics it appears the US is in a recession. In other words, Phil Gramm, Red State, Ed Morrisey, Mike Gallagher and any other right wing talking head who agreed with Phil Gramm is wrong. If you don't believe me, try reading the latest Beige Book from the Federal Reserve.

Chick Schumer caused the fall in Indy Mac.

No.

Indy Mac caused the fall of Indy Mac. They made risky loans and paid the price. They are hardly alone. 266 lenders have stopped doing business since the mortgage mess started. And the list is growing:

The FDIC disclosed last month that it was closely watching 90 financial institutions on its "problem list," up from 76 in the first quarter of 2008. The total assets of "problem" institutions rose from $22.2 billion to $26.3 billion, the FDIC said.

The number of troubled institutions monitored by the FDIC has grown in each of the last six quarters, starting in the fall of 2006 when there were just 47 on the list, the agency said. The last time it approached this level was in the fall of 2004 when the number was 95.

The FDIC does not publish a list of trouble banks out of concern it could spur a bank run, which is what the Office of Thrift Supervision (OTS) said happened to Indymac in recent weeks.

And I guess the FDIC is now a cause of the problem, because they reported the US banking industry's overall condition is deteriorating in the latest quarterly banking profile when they wrote:

# INDUSTRY EARNINGS DECLINE 46 PERCENT FROM YEAR-EARLIER LEVEL # LOSS PROVISIONS ABSORB A HIGHER SHARE OF REVENUE # TROUBLED LOANS ACCUMULATE IN REAL ESTATE PORTFOLIOS # LENDING GROWTH SLOWS # FOURTH QUARTER 2007 EARNINGS ARE REVISED BELOW $1 BILLION

Ladies and gentlemen, the facts are clear:

-- the US is in a recession. When it started exactly we won't know for awhile. My best guess given all available information is it was sometime in the first quarter of 2008.

-- The US financial system is in serious trouble. Thanks to over 7 years of reckless lending we've got major problems. One person didn't cause this -- the entire system failed.

What really gets me about all of these talking heads are these three points:

1.) Using one statistic in economic analysis is poor analysis at best. It also indicates the people making the observations have absolutely no idea what they are talking about.

2.) The facts indicate there are major problems out there. Ignoring the facts will only lead to a repeat of the current problems.

3.) This whole "put our head in the sand" routine smacks of disinformation. And that is the really scary point. The more this incredibly shallow analysis gains traction and the more an overly simplistic analysis moves into the public dialog the higher the probability that the problem won't get fixed. And that's what we have to avoid at all costs.

Comments

[Hoelder]

My scenario reaches further than yours. With the Freddie and Fannie debt and the government bailing them out, I ask myself: Where is the money? Bailing out with what? When will the Chinese and Saudis loose confidence into the Dollar and stop buying treasuries? My fellow Americans do not have much money except for the fat cats that are now moving to Dubai. Has anyone see the VP? He is in Dubai with his buddies from Haliburton.

[TRex86]

It doesn't matter what tortured definition of recession gets used, we're in deep doodoo--and have been so since Bush was selected in 2000. That the Repugs are indifferent and clueless is hardly breaking news (and won't be thanks to the corporate newswhores). Moreover, our real inflation is in the 6% range. Correcting for actual inflation puts us in negative growth for the last two years.
For the last seven years the Repugs have devoted themselves to transferring wealth to the wealthy and succeeded grandly. We fools sit back and quiver in fear that we might be accused of "class warfare" for daring to report the consequences of their kleptocracy. Remember when Clinton left office with a BUDGET SURPLUS? Where did it go? Right into the pockets of Bush's "base," the "haves and have-more's." This is rule for the benefit of a tiny minority.
De Tocqueville opined that democracy dies when the government learns to bribe the people with their own money. Stimulus checks: QED. Our governing parties are the the left and right wings of a social democratic party, both of whom use our money to feed at the trough. The Timidcrats and the Republicrooks badly need a realignment along genuine ideological lines. Our highest priority however is to restore fiscal sanity. Time is running out:
Out of Iraq
Cut the military budget
Sunset the Bush tax cut
Finance the entitlements with income taxes

[olephart]

"the US has not had two consecutive quarters of negative growth. Therefore everything is OK, there is no recession and talk of such is bunk."

By using today's methods for calculating economic performance the Great Depression was actually a period of growth and full employment.

"the US is in a recession. When it started exactly we won't know for awhile."

It started in December of 2007. If however you examine the previous 7 years using scrupulous, undoctored/unadjusted data you will conclude that the Nation never actually fully recovered from the recession of 2001. In terms of job growth the economy did not create enough jobs to maintain the status quo of the natural demographic increase. In terms of wage growth ex-higher incomes and adjusted for REAL inflation the result is negative.

If you factor out the contribution of net Government borrowing during this period the situation becomes ominously clear. The government has been borrowing about 4% of GDP for 6 years. Subtracting that from the doctored growth reports will show negative growth over that period. If the U.S. economy under Bush was a horse, it would be shot to put it out of its misery.

[Henry]

Think for just a second about the FDIC. It did not exist in the 1929. If there was no deposit insurance for Indymac would any depositor remain??? This facet of socialism, insured deposits, it a craw in the neck of freemarket republicans. (It exposes their stupidity) Imagine, further, if there was no deposit insurance, what would happen to IndyMac and the asset value of failed banks. Then think further about the liquidity crisis. Yes...indeed financial stroke that could easily lead to heart attack.
The very fact that FDIC deposit insurance exists negates the Republican braggadocio of the "free" market. (It was Ronald Reagan, of course, who bailed Continental Illinois... some free marketers these two-bit hypocrits)

[olephart]

The Republicans have never forgiven FDR for saving their skins and the U.S. as a whole.

[chendri887]

I cannot believe there was a story on CNN today debating whether or not the Gramm comment was "valid." Yes, the MSM is conservative and out of touch. But that is the least of our problems. The American messianic experiment with its everlasting fixation on "freedom" has never diverged much from its "hands off" approach to all things economic. In the 19th and early 20th centuries, such an approach, as irrational as it was even then, may have been more "viable" due to the possibility of small-scale agriculture and small-scale business truly having a chance to provide one with a living. But today, with corporatism running rampant, with the deregulation and lowered taxation promoted by forty years of federalist conservatism, with globalization putting Americans in close contact with a world that wants its lifestyle, but increasingly views it as "selfish," we are in a difficult situation. Frankly, I don't think anyone has a clue about how to deal with this. And, when Phil Gramm calls me a "whiner," he is saying I should be content to have no healthcare, no job security, no home, no chance of retirement, no chance of saving money, and no leisure time. If that's whining, well, I'll happily take the label.

[torrrep]

Sorry , but I don't care how many charts you have. The definition of recession is STILL defined as 2 quarters of negative growth. Not slow growth. Not declining growth. Negative growth. You call it anything you want but if you call it a recession I will call you a liar. The definition we use now is the same definition we have used for years. But I guess when Republicans are in office you just change the definitions to suit your needs, right?

[Kantinflas]

When it comes to recessions, the official decider is the National Bureau of Economic Research. Here are a couple of relevant quotes from its website:

>> A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

>> Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.

[TRex86]

Bee-you-ti-ful.
Well done.

[ImmanuelGoldstein]

Well yes just like we change the definition of things like unemployment, or inflation and then discuss them as if these changes weren't made.Both of these figures would be much higher if we used previous definitions for them. Comparisons without these adjustments are inherently invalid.

[MajorKong]

I work for one of the big package delivery companies. These are often considered bellwethers for the
economy as a whole because the # of packages we ship pretty well reflects overall economic activity.

Our loads are down to 1998 levels. Fuel costs are killing us and we're flying planes that are 2/3 full.

Call it a "slow down" if you like, but that's like saying a car "slows down" when it hits a light pole. Technically true, but doesn't really communicate the severity of the situation.

[usna73]

Simply wrong. If you don't report the facts accurately or change the rules in the middle of the game, prior "defintiions" are irrelevant. The PCE deflator is so wildly out of kilter that the rest of the numbers become meaningless. Talk about changing things to "suit your needs."

What is even more disturbing though is the use of the "Bill Gates works at McDonalds" logic.

If Gates were to work at McDonalds I'm usre the "average" or "mean" net worhts would be stratospheric. The same tortured logic is being applied throughout bubblevision to try to get the public to buy the notion of an expanding economy.

This time however, Phil Gramm's unwashed masses are not being fooled.

[MSB]

torrrep,

I honestly have to ask you what I ask all apologists for this regime....

What the hell is wrong with you? Why do you defend the indefensible? These people would see your family eating out of dumpsters rather than have to settle for a house with eight bedrooms and you defend them. Why?

Honestly, no THINKING person could support this administration unless they have an ulterior motive. You are either VERY rich or very ignorant.

[Chillinout]

Duh! Personally, I think we are out of the recession and into a depression. I think about this every time I go to a store or a gas station.

[clarkbarr]

Well this is what happens when the economy was run into the ground by a Dr Phil who flunked out 3 times in school!

[BillZBubb]

The good news, Bonddad, is that the Republicans can't pull the wool over peoples eyes this time. Their old song and dance, smoke and mirrors, dog and pony tricks won't work. Only the mentally deficit, dead end 20%ers believe the cow dung the right wing is pumping out.

The conservatives might have once again gotten away with their colossally inept and criminal economic behavior if it hadn't been for gasoline prices. That is the one item that everyone is painfully aware of every day. It's not just the other guy getting hit this time, it is everyone from the middle class down.

Bush and the conservatives are responsible for this. And all but the dead-enders know it.

[dobberdoss]

Dont you believe it!, most Americans wouldnt even know the definition of ``Recession, Depression or Inflation``. Your a nation of `mugs` which is why your in this mess & they (govenment)know it. The only ones who dont know are the `people` themselves.

``Fool me once, shame on you, fool me twice shame on me``, man those words should be in your National Anthem!

[FreedomCorpse]

Well Hale, the republican political party has prided itself about being 'conservatives'...it used to be fiscal conservatives but those guys are all dead now. When someone does the math, Bill Clinton was the best fiscal conservative this country has seen in since well before Nixon....but the GOP hated him...I only hate clinton for nafta, the telecommunications act of 1996 and the ...what? the Gramm-Leach-Bliley Act of 1999.

If you calculate the true inflation rate (shadowstats.com) against the S&P 500 we've had a decade of 0 gains..... that's republican economic theory.

[xrepublican]

How can you talk INTELLIGENTLY about the economy when ALL numbers are suspect.

We KNOW that the inflation stats are bogus - leaving out food and energy. So those COLA payments based on inflation rates are coming us VERY short in REAL terms for people. In the 70's you were at least getting 11% on CD's - instead of the 3% you see now....... we're getting screwed AND getting lied to about it as well........ Who cares if you can still buy a cheap toaster from China if you can't afford bread? Housing prices are tanking because people are losing their houses and rentals are now plentiful..... is this GOOD?!?!?!?

UNEMPLOYMENT numbers have been fudged so badly, with so many people UNDER-employed, we don't have a clue about what's going on.

How many new 'small business jobs' are in fact fired executives trying to find ANYTHING to do making money? Opening a 'consultant' business or buying a SUBWAY franchise with 401K money is NOT 'good' - this is a sign of desperation. I see laid off execs in their 50's scrambling to find ANYTHING to do until they hit 65.......

Yet unemployment numbers are somehow never all that bad..... even though they're invariably 'corrected' months later - always worse.

According to Shadow Stats, REAL unemployment numbers and REAL inflation stats put the misery index at 26 or higher - a 25% increase over the 'record' level in 1980 - yet NOBODY is covering THAT story.

[chendri887]

Seems about right to me, if not even worse. Things certainly weren't as great under Clinton as Democrats make it out to be today.

[RoloTomassi]

Please, compared to the current situation it is like the difference between night and day. No, it wasn't perfect or the best ever, but it was a far cry better than this current travesty.

[dadw5boys]

routine smacks of disinformation.

IT IS MISINFORMATION. FREDDIE MAC AND FANNIE MAE WERE FORCED TO TAKE TOO MANY BAD LOANS MOSTLY FULL OF FRAUD AND THAT IS WHAT THEY ARE TRYING TO HIDE IS THE FRAUD!!!!!!!

FRAUD FROM LENDERS AND BANKS ARE BEING HIDDEN TO COVER UP HOW DEEP THIS GOES. BANKERS WERE BORROWING FROM THEIR OWN BANKS WITH NO LIMITS.

[SCG2]

The numbers are massaged, baked , and covered in a thick cherry sauce.

[moAb]

Great analysis Bonddad. Thanks for speaking "Truth to power".

IndyMac...just the latest "shoe to drop"...the beast must be a centipede. We have a lot of shoes to go.

[Kantinflas]

Bonddad, the recession deniers don't have a "put our head in the sand" problem. The problem is that they're putting their heads somewhere much darker. And smellier.

[swift goat pet for truth]

The GOP has demonstrated for 12 years that they can't run an economy, nor manage the dollar.

[torrrep]

For 12 years? That's funny. Bush has only been in office for 7. Maybe you should take a math class.

[chendri887]

Come, to be fair, Clinton's economic policies were pretty Republican. He was not very progressive in his approach to economics. So, swift goat is not too far off the mark.

[WIpatriot]

Maybe you should take a reality class. The Pubbies controlled Congress since '94 until '06.

Unless, you want to give Bushie credit for trashing the economy in record time.....

[RoloTomassi]

Maybe you should learn a bit about abstract thought and try applying a bit of it to the present day in economics and politics, considering that you're hanging onto the BS notion that there's no recession and everything is just f*cking rosey....