Interesting

[Cheeseburger_in_paradise]

The 'Recession' Is a Media Myth

Monday , March 31, 2008

 

By John R. Lott, Jr.

 

 

During the 2000 election, with Bill Clinton as president, the economy was viewed through rose-colored glasses. According to polls, voters didn’t realize that the country was in a recession. Although the economy started shrinking in July 2000, most Americans through the entire year thought that the economy was fine.

 

But over the last half-year, the media and politicians have said we were in a recession even while the economy was still growing.

 

Gas prices are going up. The economy is slowing. Talk of recession is seemingly everywhere. While the majority of people rate their personal finances positively, consumer confidence in the economy has plunged to a 16-year low, well below what it was during the last year of the Clinton administration when we were in a recession.

 

A Google search on news stories during the three-month period from July 2000 through September 2000 using the keywords “economy recession US” produces 1,610. By contrast, the same search over just the last month finds 50,763. Or, even more telling, take the three months from July through September last year, when the GDP was growing at a phenomenal 4.9 percent. The same type of Google search shows 7,310 news stories.

 

Over 4.5 times more negative news stories discussed a recession when the economy under a Republican was soaring than occurred under a Democrat when the economy was shrinking.

 

A little perspective on the economy would be helpful. The average unemployment rate during President Clinton was 5.2 percent. The average under President George W. Bush is just slightly below 5.2. The current unemployment rate is4.8 percent, almost half a percentage point lower than these averages.

 

The average inflation rate under Clinton was 2.6 percent, under Bush it is 2.7 percent. Indeed, one has to go back to the Kennedy administration to find a lower average rate. True the inflation rate over the last year has gone up to 4 percent, but that is still lower than the average inflation rate under all the presidents from Nixon through Bush’s father.

 

Gas prices are indeed up 33 percent over the last year, but to get an average of 4 percent means that lots of other prices must have stayed the same or gone down. On other fronts, seasonally adjusted civilian employment is 650,000 people greater than it was a year ago. Personal income grew at a strong half of one percent in just February.

 

Despite all that, this last week, Barack Obama proclaimed “As most experts know, our economy is in a recession.” Hillary Clinton made similar staements last fall. Yet, as any economist knows, a recession is two consecutive quarters of negative growth, and we haven’t even had one single quarter of negative growth reported. The economy slowed down significantly during the end of last year, but that was after a sizzling annual GDP growth rate of 4.9 percent in the third quarter.

 

Housing has obviously been a big drag on the economy, but many other sectors of the economy, such as exports, have been doing well, some extremely well. For example, aerospace exports increased by over 13 percent last year.

 

The media’s focus on the negative side of everything surely helps explain people’s pessimism. In a recent interview Fox’s Neil Cavuto claimed this bias “is all part of the media’s plan to get a Democrat in the White House.”

 

Indeed, research has indicated that media bias is real. Kevin Hassett and I looked at 12,620 newspaper and wire service headlines from 1985 through 2004 for stories on the release of official government releasing numbers on the unemployment rate, number of people employed, gross domestic product (GDP), retail sales, and durable goods.

 

Even after accounting for how well the economy was doing (e.g., what the unemployment rate was and whether it was going up or down), there was still a big difference in how positive or negative the headlines were. Democratic presidents got about 15 percent more positive headlines than Republicans for the same economic news.

 

Yet, the hysteria created by this coverage can have another cost. It creates pressure for government to “do something,” even if that rush to do something actually ends up hurting the economy. For example, Obama's promises last week “to amend our bankruptcy laws so families aren't forced to stick to the terms of a home loan” will only further drive down the value of mortgage-backed securities, making any unstable financial institutions that hold them even more likely to fail. In the long term, who is going to want to loan money when the contract can be rewritten at a later date?

 

The news media have generated a lot of fear. Ben Stein has a point when he says “The actual economic conditions are not that bad. I think if we have a recession, if we have a serious recession, a great deal will lie at the media’s feet.” Hopefully a little perspective will enter the picture before even more harm is done.

 

John Lott is the author of Freedomnomics and a senior research scientist at the University of Maryland.

[Chilly]

Link: http://www.foxnews.com/story/0,2933,343671,00.html

[John Adams]

When the market loses 10% of its value in 4 months, people worry about recession. Combine that with housing slowdown, gas prices, and mortgage issues--items that punch people right in the gut, and people really worry about recession.

 

In the period the author cites (June-Sep 2000), the Dow was steady, real estate prices were rising, gas prices were level, and mortages were easy to get.

 

Bad comparison. Nice headline-grabber though. Recession to most Americans means: things are going bad with my money.(I know it means something different to economists.) That's what's been going on in the last few months that wasn't happening in 2000, so people are worried.

[GG]

I think it's a stretch to attribute the incessantly negative economic reporting to "media's" desire to elect a Democrat. Lazy journalism and greater sourcing of wire services are more likely culprits.

[UConn James]

A Google search on news stories during the three-month period from July 2000 through September 2000 using the keywords “economy recession US” produces 1,610. By contrast, the same search over just the last month finds 50,763. Or, even more telling, take the three months from July through September last year, when the GDP was growing at a phenomenal 4.9 percent. The same type of Google search shows 7,310 news stories.

 

Over 4.5 times more negative news stories discussed a recession when the economy under a Republican was soaring than occurred under a Democrat when the economy was shrinking.

....

Gas prices are indeed up 33 percent over the last year, but to get an average of 4 percent means that lots of other prices must have stayed the same or gone down.

 

1) Why is the dude comparing how many website hits off of generic keywords he found on fuggin' Google? How does the # of such tell us anything, considering that the use of the Internet by the media has grown just a bit since 2000? And how much of today's # is just the same AP story, published over and over and over...? This is like telling us how many people had cars in 1902 and then in 1908. Stupid.

 

b) I'm not sure Id make any sweeping judgments regarding gas prices' link with inflation and then make a sweeping judgment on the CPI based on that link. Some truth in it, yes.

[bills_fan]

No offense intended by this McCain backer, but the recession fears are real and the economy is in very real trouble. I don't think this is overblown at all. Housing prices and inflation (including food and energy, cause to exclude is BS) are the two major concerns.

[DC Tom]

When the market loses 10% of its value in 4 months, people worry about recession. Combine that with housing slowdown, gas prices, and mortgage issues--items that punch people right in the gut, and people really worry about recession.

 

In the period the author cites (June-Sep 2000), the Dow was steady, real estate prices were rising, gas prices were level, and mortages were easy to get.

 

Bad comparison. Nice headline-grabber though. Recession to most Americans means: things are going bad with my money.(I know it means something different to economists.) That's what's been going on in the last few months that wasn't happening in 2000, so people are worried.

 

Of course, that first point just means that people are stupid for confusing a bear market with a recession.

 

As for the rest...there's plenty of reasons for consumer confidence to be low (for example, the ones you state), as well as plenty of reasons to believe we're entering a recession (for example...the ones you state). However...the article's first point is entirely valid, in that the media has been reporting that we're "in" a recession when the numbers haven't yet supported the conjecture. And of course it's due to media bias...the media's biased towards a nice, juicy negative story. "Economy is slowing down but not yet in recession" doesn't sell ad space (which, when you think about it, is rather ironic).

[Chilly]

Of course, that first point just means that people are stupid for confusing a bear market with a recession.

 

As for the rest...there's plenty of reasons for consumer confidence to be low (for example, the ones you state), as well as plenty of reasons to believe we're entering a recession (for example...the ones you state). However...the article's first point is entirely valid, in that the media has been reporting that we're "in" a recession when the numbers haven't yet supported the conjecture. And of course it's due to media bias...the media's biased towards a nice, juicy negative story. "Economy is slowing down but not yet in recession" doesn't sell ad space (which, when you think about it, is rather ironic).

 

Is there an "official" list of requirements to have a recession?

[Chef Jim]

Expansions are followed by contractions. The economy contracts pretty much once every four years. It's contracting now. So what, who cares. Diversify, dollar cost average at least ten percent of your monthly income, rebalance and don't do anything stupid or overreact to what you read in the papers or online.

 

But it's different this time.

[bills_fan]

Is there an "official" list of requirements to have a recession?

 

 

The official definition is two consecutive quarters of negative economic growth (usually measured as GDP). When results are tabulated, we may see Q108 as being the first of the two quarters.

 

Problem with the definition is that you can't officially say that we are in a recession until we are two quarters into the game.

[Chilly]

Thanks.

[Chef Jim]

The official definition is two consecutive quarters of negative economic growth (usually measured as GDP). When results are tabulated, we may see Q108 as being the first of the two quarters.

 

Problem with the definition is that you can't officially say that we are in a recession until we are two quarters into the game.

 

And the "official" announcement that we are now in a recession usually comes when it's over.

[DC Tom]

Is there an "official" list of requirements to have a recession?

 

Yes.

 

There's even an official organization that determines if the economy meets the definition. And they usually can't tell until the economy recovers. They couldn't identify the '81 recession (which was a really bad one) until two years after we were out of it.

 

 

So it's hardly clear-cut science, either. It'd be a lot more honest of the media to simply say "Housing prices and sales are down, housing starts are down, the dollar's down, fuel and food prices are up, but economic productivity is still growing, inflation excepting food and fuel is under control, and unemployment numbers are healthy" and not bother trying to label it a "recession". But again...doesn't sell ad space.

[GG]

And the "official" announcement that we are now in a recession usually comes when it's over.

 

That was the case in '01, but recessions usually last longer. Not to be dismissed is the remarkable achievement that the last significant recession was 17 yrs ago. Of course, during that time it made people oblivious to risks, and we're paying for it now.

[bills_fan]

That was the case in '01, but recessions usually last longer. Not to be dismissed is the remarkable achievement that the last significant recession was 17 yrs ago. Of course, during that time it made people oblivious to risks, and we're paying for it now.

 

 

Nah, the Gov't will just socialize the downside risk of loss. See ....ding...Hot Pocket is ready!!

[GG]

Nah, the Gov't will just socialize the downside risk of loss. See ....ding...Hot Pocket is ready!!

 

You may be right, we should be following the economic history of the 19th & early 20th centuries

[Chilly]

Yes.

 

There's even an official organization that determines if the economy meets the definition. And they usually can't tell until the economy recovers. They couldn't identify the '81 recession (which was a really bad one) until two years after we were out of it.

 

 

So it's hardly clear-cut science, either. It'd be a lot more honest of the media to simply say "Housing prices and sales are down, housing starts are down, the dollar's down, fuel and food prices are up, but economic productivity is still growing, inflation excepting food and fuel is under control, and unemployment numbers are healthy" and not bother trying to label it a "recession". But again...doesn't sell ad space.

 

Heh. When I was in school (hah, I can say that now), I took two economics classes, but still know jack sh-- about the way the American economy really works. Pointless classes, those were.

 

Any reading recommendations from the economically inclined?

[Chef Jim]

Yes.

 

There's even an official organization that determines if the economy meets the definition. And they usually can't tell until the economy recovers. They couldn't identify the '81 recession (which was a really bad one) until two years after we were out of it.

 

 

So it's hardly clear-cut science, either. It'd be a lot more honest of the media to simply say "Housing prices and sales are down, housing starts are down, the dollar's down, fuel and food prices are up, but economic productivity is still growing, inflation excepting food and fuel is under control, and unemployment numbers are healthy" and not bother trying to label it a "recession". But again...doesn't sell ad space.

 

I loved this headline.

 

Bernanke Uses "R" Word While Meeting with Congress

 

My though was, Retards?

[GG]

Any reading recommendations from the economically inclined?

 

The Economist, followed by WSJ & FT

[Chef Jim]

Heh. When I was in school (hah, I can say that now), I took two economics classes, but still know jack sh-- about the way the American economy really works. Pointless classes, those were.

 

Any reading recommendations from the economically inclined?

 

I hear this is a great place to start.