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September 24, 2008

About Those "Unsound Fundamentals"

Via Maggie's Farm, a quiz on the economy:

1. Which of the following countries had the highest economic growth since 2000?

1. France

2. Japan

3. Germany

4. U.S.A.

2. Which of the following countries has the highest GDP per capita?

1. U.K.

2. Germany

3. Japan

4. U.S.A.

3. Which of the following countries had the highest household consumption in 2005?

1. U.K.

2. Canada

3. France

4. U.S.A.

4. Which country spends the most per capita on health services?

1. U.K.

2. Germany

3. Canada

4. U.S.A.

5. What percentage of the U.S.A.’s population is covered by health insurance?

1. 55%

2. 65%

3. 75%

4. 85%

There's plenty more here, plus the answers. While you're contemplating the mysteries of the universe, the Editorial Staff would also like to commend to you this interesting chart:


Click for larger, interactive version of chart

A few points:

1. Unlike the media, who formally define a recession (before going on to tell us that regardless of what the data say, "it sure feels like we're in a recession") as two or more quarters of declining real GDP, the NBER's definition of a recession includes more than GDP:

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. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.

2. The data for the most recent recession (in 2001) was mixed enough that it required a judgment call to even term it a "recession":

The most recent recession in our chronology was in 2001. According to data as of July 2008, the 2001 recession involved declines in the first and third quarters of 2001 but not in two consecutive quarters. 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.

To sum up, newly revised GDP data show declining GDP in quarters 1, 2, and 3 of 2001. Until recently, however, the data only showed GDP declining in quarters 1 and 3. By the traditional definition, this would NOT have been a recession. By the newly revised data, it would qualify. It also means George Bush inherited an economy already headed into recession. if you accept the traditional definition.

2. Interestingly enough, despite the nearly constant warnings of impending (and current) recession the Editorial Staff have endured from pundits, television news anchors, and unbiased economic reporters over the last 8 years, the NBER - and the data - have some surprising things to say on that subject:

The National Bureau's Business Cycle Dating Committee maintains a chronology of the U.S. business cycle. The chronology identifies the dates of peaks and troughs that frame economic recession or expansion. The period from a peak to a trough is a recession and the period from a trough to a peak is an expansion.

Now here's the killer quote:

According to the chronology, the most recent peak occurred in March 2001, [Ed. note: Six months before 9/11 for you folks without a pocket calendar. Since both the original and revised data showed declining GDP growth in the first quarter of 2001, this would seem to make claims that the "recession" is due to Republican White House policy roughly equivalent to saying Bush was single-handedly able to turn the economy around in a mere 6 weeks. Quite an achievement, wouldn't you say?] ending a record-long expansion that began in 1991. The most recent trough occurred in November 2001, inaugurating an expansion.

That's right. An expansion. Since November of 2001, the U.S. economy has experienced a period of uninterrupted economic expansion despite a major terrorist attack and two wars.

Posted by Cassandra at September 24, 2008 06:55 AM

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