Why oh why do I read anything at the NRO and, if I do, why do I ever bother with Jerry Bowyer? He says:
Gas Bags, by Jerry Bowyer, NRO: ...Gas-price hikes will never, ever, ever cut into consumer spending. It’s a mathematical impossibility. Here’s why: Gas prices are a component of consumer spending.
You see, when gas prices climb from $2 a gallon to $3 a gallon, one of the components of retail spending goes up. ...
Sure, if people spend more money on gas, they may very well spend less on soft drinks. But that’s a substitution, not a decrease in overall spending. The spending simply shifts from one retail category to another.
So why don’t we ever hear this? Well, with a few notable exceptions, mainstream TV commentators don’t know the facts, which often are buried in the details. You can’t just read a financial press release from a government organization (or worse yet, the blurb about the press release) and understand what the data are saying. A Larry Kudlow, a Steve Forbes, a Dan Yergin, a John Rutledge, an Art Laffer, a Brian Wesbury — these folks actually read the reports, including the tables in the back. They look at rows of numbers; in the case of a consumer-spending report, they note the row that is devoted to gas stations.
Meanwhile, the ... only numbers they master are the phone numbers of their favorite producers. Good at getting on the air is not remotely the same as good at getting it right.
He is arguing that input costs don't matter, but of course that's wrong. It's just not true that "Gas-price hikes will never, ever, ever cut into consumer spending," see the 1970s for one counterexample. Or do a simple thought experiment. If the price of oil went up to, say, $1,000 a barrel tomorrow, would real GDP stay at its current level, or might you expect a decline in GDP, in the short-run at least? And if GDP falls, then consumer spending will fall along with it.
Maybe the problem is that the people he so admires are simply looking at tables of numbers rather than doing actual econometric investigations solidly grounded in economic theory, something that involves more than, say, two lines drawn on a graph (see the completely uninformative graph he has plotted in this article for his latest along these lines - that graph tells us nothing whatsoever, but Bowyer appears to place great stock in the relationship between the two variables over the last 11 months - it's almost comical to see the graph put forward as serious analysis). Seriously, try doing actual econometric analysis instead of looking at "rows of numbers; in the case of a consumer-spending report, ... the row that is devoted to gas stations." Even when you try to get sophisticated and compare two rows at once, that isn't adequate (hey, both are going up!). Doing so leads to false conclusions like tax cuts pay for themselves because you haven't bothered to consider factors like trend growth in tax receipts (to name just one omitted variable in the typical "analysis").
Anyway, Bowyer - who isn't an economist but plays one at the NRO - should realize that "good at getting an article at the NRO is not remotely the same as good at getting it right," something he has shown time and again.
Update: PGL continues the discussion.