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Saturday, July 12, 2008

A Bunch of Whiners?

Amity Shlaes says Phil Gramm is right, people really are whiners. This annoys me. Comments below:

Phil Gramm Is Right, by Amity Shlaes, Commentary, Washington Post: ..Phil Gramm ... is McCain's most senior economic adviser.. Now, however, Gramm faces political exile because he made the mistake of telling the truth.

What prompted the abrupt demotion? The short answer is what might be called Campaign Econ. Campaign Econ says the American economy is a certain way because Americans think it is. Campaign Econ competes with real economics and often wins -- with damage that extends way beyond, say, the political career of either Phil Gramm or John McCain.

So people are irrational in their beliefs? Must be how we got Bush as president. Anyway:

Consider what happened this week. While speaking with the Washington Times, Gramm said that the country was not in a true recession but a "mental recession." He also said, "We have sort of become a nation of whiners" and "You just hear this constant whining..."

Gramm was right about the recession and stood by his recession comments on Thursday. A recession is two consecutive quarters in which the economy shrinks, and last quarter it grew. But no matter. Voters feel they are in a recession, and so they are, at least according to Campaign Econ. ad_icon

She doesn't know what she is talking about, or she is being intentionally misleading. That's not how a recession is defined. But you don't have to believe me, here's the NBER - the people who formally date recessions:

Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER's recession dating procedure?

A: 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.

Q: Could you give an example illustrating this point?

A: On July 31, 2002, the Bureau of Economic Analysis released revised figures for gross domestic product that showed three quarters of negative growth in 2001-quarters 1, 2 and 3-where previously the data had shown only quarter 3 as negative. This revision shows why the committee does not rely on a simple rule of thumb such as two consecutive quarters of negative growth, nor relies on GDP data alone, in making its determinations, but rather looks at a broader array of statistics. In November 2001, the ... two-quarter-decline rule of thumb would not have allowed the declaration of the recession... It was not until eight months later that revisions in the GDP data showed declining real GDP for the first, second, and third quarters of 2001.

Back to the article which, I hope you can see, is based upon a false premise due to her apparent lack of understanding of how recessions are dated. (I would have thought she'd know this claim isn't right, it's been written about so much most people who write about these issues know the NBER procedure by now, so there's a chance this is an intentional deception. If it's not intentional, if she doesn't know how recessions are dated, then she has no business writing about it.) Her claim is that because there hasn't been two consecutive declines in GNP, the economy can't be having problems. Therefore, people are nothing but whiners.

She says you can't tell people the truth, that they really are nothing but whiners, because it hurts their feelings:

Gramm's second sin was political. Calling voters whiners is to shame them. ... Campaign Econ is unabashedly populist, and to seek to elicit shame is regarded as unpardonably elitist. ...

Calling someone who has just been laid off a whiner doesn't shame them, it makes them mad. And it should.

Now she's going to tell us about the problems that don't exist:

Campaign Econ is certainly understandable. Gas prices are ruining vacation plans and killing businesses. Many Americans have lost or are about to lose their homes... inflation plagues the country. The weak dollar is altering our everyday calculations. For many, this is not a happy summer.

But don't talk about that unhappiness - you'll be called a whiner!:

Still, to liken the current moment to the Great Depression, or even the early 1980s, as Campaign Economists have, is to whine, just as Gramm said. ... The country approached double-digit unemployment in the early 1980s. This week, even as McCain was trying to talk his campaign past Gramm's comments, joblessness stood at a historically modest 5.5 percent.

If you look at the NBER definition, you will see that they look at employment and personal income as part of the dating procedure. How have those been doing? How's the employment to population ratio looking these days? Cherry picking a single statistic - unemployment - to make a case is unconvincing, especially when other labor market indicators tell a very different story.

Next, the standard blame the government for any problems that might occur. The press and politicians convince people of problems that aren't really there (they just decide one day, out of the blue, to start saying the economy is in trouble), then the evil government responds:

And Campaign Econ has costs. The first is that talk of a downturn -- or "mental recession," as Gramm put -- can itself generate a downturn. Keynesian economists say this is so because consumer spending slows when people are afraid. But there's also a non-Keynesian dynamic. Grumbling leads to costly government rescues that scare markets and slow growth.

Yes, it's wrong for government to step in and try to help all the whiners that lose their jobs in a downturn. They and their families should suffer through whatever problems they might encounter since conservatives think that helping them might slow economic growth (even though there's no evidence that slower economic grwoth is a problem we should worry about).

Oh, I forgot, there is no downturn, only the possibility of one due to evil government's support of Fannie and Freddie:

[A]s evidenced by the plummeting prices of Fannie Mae and Freddie Mac shares, serious trouble may be closer than we think. The plunging stock of the government-sponsored mortgage companies reminds us that those entities urgently require restructuring. Wall Street figures and the Senate Finance Committee ... are already talking about how to structure a bailout. But this task is about stopping recession, not luxuriating in it.

I guess it's okay to whine about the possibility of a recession if you can somehow cast it as a problem with government.

The next part is no surprise. She can't write a column without taking a swipe at Social Security and Medicare.

Social Security and Medicare also need rewriting -- and Gramm put forth one of the better proposals on Social Security in the 1990s.

How does Gramm's proposal in the 1990s relate to people whining about the non-existent problems she just identified?

So here's here solution:

In short, to fix it all, we need a frank conversation about the economy. McCain, in fact, inaugurated one back in 2006 when he gave a speech that was downright Gramm-like at the Economic Club of New York.

To "fix it all"? But I thought people were whining about nothing? Oh, I see, to fix it all we need to fix entitlements:

In that speech, McCain said that on entitlements, hard choices were necessary. He concluded: "Any politician who tells you otherwise, Democrat or Republican, is lying."

This was McCain at his best. Many voters knew it, too.

Yeah, the voters knew that was McCain at his best - and they realized if that was his best there wasn't much substance there - and they either moved on to support other candidates, or held their nose and supported McCain (some even write columns).

More on the solution:

The way to strengthen the economy right now is to elect leaders who dare to talk about problems in precise and even technical terms -- and then act on them. McCain has that capacity, but only if he can transcend Campaign Econ.

Precise, technical terms like knowing the definition of a recession? First-rate analysis of the economics of a gas tax holiday? Honest presentations about deficit reduction plans? Things like that would be nice, but as we saw from the whiner comment - a very technical and precise term - I'm afraid we won't get that from McCain's team.

You see, it's okay to whine about Social Security based upon deceptive presentations of its financial state or to whine about social programs generally, it's okay to whine about anything the government does to try to help people having troubles due to the state of the economy, it's also okay to whine about the liberal press misleading people, and it's okay to whine incessantly if anyone so much as thinks about making taxes more progressive.

But if you have lost your health insurance, had your wages stagnate, your retirement program at work eliminated or scaled back, if you are worried about job security or have been forced to look for a new job as the economy retools for the global age, if you are worried about how gas prices, food costs, and other price increases might impact your budget and have seen the value of your house plunge as those around you get into trouble, if you so much as dare to speak up about any of these or other problems, then you are nothing but a whiner.

Buck up, common folks, the rich people in the Republican party are doing just fine, thank you very much, and they really don't want to hear whining from the masses.

Update: Via Brad DeLong:

McCain Throws Phil Gramm Off the Train/Under the Bus/Over the Side:

Think Progress: Holtz-Eakin: Phil Gramm Is No Longer ‘Giving Advice To Senator McCain’» Since Thursday, Sen. John McCain’s (R-AZ) presidential campaign has been in damage control mode, attempting to distance itself from top economic adviser Phil Gramm’s belief that America is “a nation of whiners” that is only going through a “mental recession.” “Sen. Graham and I, as I said, we have a total disagreement on whether Americans are whiners or not,” McCain told reporters yesterday.

Appearing on PBS’s Nightly Business Report last night, McCain’s senior policy adviser, Douglas Holtz-Eakin, claimed that because of the comments, Gramm would no longer be giving McCain advice:

GERSH: Is Senator Gramm still giving advice to Senator McCain?



HOLTZ-EAKIN: At — I haven’t spoken to Senator Gramm since the comments took place, and I’m not expecting to...

    Posted by on Saturday, July 12, 2008 at 11:34 AM in Economics, Politics | Permalink  TrackBack (0)  Comments (92)


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