this post was submitted on 24 Jun 2024
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The Washington Post Wants You To Think the Economy Is Awful #45,706 (cepr.net)
submitted 4 days ago by fukhueson to c/economics
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[–] [email protected] 7 points 4 days ago (1 children)

How surprised should we be, really, when a media outlet owned and operated by one of the richest people in the world is advancing the narrative that the existing status quo is detrimental to the average person during an election year?

To be clear, an individual's anecdotal experience in the economy will not match up perfectly with the data. Yes - the prices for food and housing have increased faster than we would have liked. However, policymakers are only able to account for a small adjustment in policy recommendations based on anecdotes.

At the national level - in Congress or at the Federal Reserve - large volumes of data are necessarily collected and analyzed to create an aggregate picture of the economy. Individual policymakers are encouraged to argue about the best or most accurate measures to use, and different leaders will point to different measures as evidence to support their proposals, but ultimately these are the drivers of economic policy.

While yes, I would support prices returning to 2019 levels, I've studied enough history to understand that this is not the nature of a market economy. We can stand around all day bemoaning the state of things or we can accept the situation as it is provided to us and figure out the path forward.

I see the types of articles highlighted by OP as bad-faith reporting on the economy with the goal of increasing pessimism about the economy more broadly, riling up our Keynesian Animal Spirits to expect bad outcomes, rather than pointing out the good policy measures and reasons for optimism like the OP did.

[–] [email protected] -4 points 4 days ago* (last edited 4 days ago) (1 children)

Ah, yes, pissing on my back and telling me it's raining, followed by telling us we can't possibly understand it, so we're wrong.

Got any other sophistry you'd like to employ?

Ffs, the economy is tanking, with major metrics showing it for years now.

[–] [email protected] 3 points 4 days ago (1 children)

Not at all, I don't know you, but I'm fairly certain you could understand it if you took the time to. The point I am making is that there is a disconnect between the way that policymakers view the economy (robust and steady growth) and the way that journalists have been reporting on it (doom, gloom, impending disaster).

I retrospect, my initial argument was fairly tinfoil hat. Another explanation could be that fear and anger brings eyeballs and since WaPo, in addition to many other legacy outlets that still regularly print on physical paper, is effectively underwater from a business standpoint, the editor may feel that sensational headlines are important for growth. Their new CEO has pedigree as a Murdoch crony, and this tactic is in line with the way that outlets on the far right have gotten engagement, so it isn't difficult to imagine mandating a similar strategy.

As the OP explained in their piece, "major metrics" are showing the opposite of what you, and outlets such as WaPo, are suggesting. We have seen several "major metrics" trending in a positive direction such as real wage growth and unprecedented levels of employment. Sure, the economy isn't perfect for everyone, but where we've identified gaps, in some cases thoughtful policies, such as income-driven repayment plans for student loans, have been introduced.

Yes, housing costs are too high. This is ubiquitous throughout the developed world. Yes, too much wealth has been redistributed to the ultra-wealthy, and this has detrimental effects throughout the economy. But to suggest that, "the economy is tanking", without providing any argument to support it other than "major metrics" doesn't resonate with me at all.

[–] [email protected] -1 points 3 days ago (1 children)

One of the risks of controlling to a certain number is that the number eventually stops being indicative of anything other than the degree to which it is controlled.

Inflation is higher than the government pretends, which changes everything. One example of this is housing which has become a dominant part of most people's budgets. Another example is food -- someone compared the cost of fast food in 2024 to fast food in 2019, and it's many multiples higher in cost. Those two things alone make up a large portion of people's budgets so changes to those prices represent mass inflation to people.

If we measured inflation the same way we did in 1990, first of all inflation measurements have been at least double what they have been, and second of all that increased inflation totally changes the story of "the greatest economic expansion on record". Instead it tells a story of 2008s financial crisis never ending.

https://www.shadowstats.com/alternate_data/inflation-charts

The "official numbers" are bullshit. They stop reporting crime so crime claims to have gone down. They change the inflation numbers so inflation stays down. They post numbers they don't even believe then quietly revise them down after the press hoopla goes away month after month. We're all supposed to ignore the growing homeless camps everywhere.

I mean... The Soviet Union was doing better than ever before until the moment in 1992 it ceased existing.

[–] [email protected] 2 points 3 days ago (1 children)

Someday I'll stop feeding the trolls, but apparently today is not that day.

Alright, first up, do a quick Google for anecdotal fallacy and consider whether you may have inadvertently fallen into that.

Second, you seem to simultaneously be arguing that the government is somehow omnipotent and impotent at the same time - which is it? Either the government is carefully manipulating the economy to hit the numbers we're controlling for or they don't have a clue how to calculate inflation but I can't see how they could do both simultaneously.

Third - calculating inflation - how do you think we should be doing it? You state that the government is pretending it is lower than a true reflection of reality but don't seem to have a perspective on why that is. At one point you're suggesting that it's high because fast food prices went up, then you go on to say that things would be better if we measured it like we did 35 years ago. What are you proposing, exactly, and how would your proposal leave us better off?

Let's say for a moment that I agree with you and the "official numbers" are bullshit. How, exactly, would you like policymakers to make decisions if they have no data upon which to base their decision? Should we expect our leaders to simply rely on their gut instinct?

Not going to comment on crime stats, but I can't stop myself from asking about, "They change the inflation numbers so inflation stays down." what do you mean by this? Do you think that the BLS publishes an inflation figure and the entire market economy shifts to conform to that number? I simply can't.

Regarding housing - yes, we don't have enough of it. This is something people are running into all around the world and it isn't unique to the US. I'm certainly not suggesting that it isn't something worthy of being addressed, but what does it have to do with the Washington Post?

[–] [email protected] 0 points 2 days ago

Before we even start, I'm not the same person you were originally talking to. I'm making the arguments I'm making, and not necessarily the arguments others have had. I'm responding to your argument about major economic metrics.

Next, would you please consider not being so disrespectful to people who simply hold an opinion? Not every person who has a different opinion than you is trolling. Try to assume good faith. Hey, maybe my sincerely held beliefs are wrong (Unlike many people on the fediverse I do change my mind if I either come to new conclusions through reason or are provided with stronger arguments) but they're sincerely held. I've been studying economics since the GFC, and my opinions are based on hours of research (but I could be wrong anyway, since there's many avenues you can research for hours that are nonetheless incorrect). If that constitutes "trolling" then trolling is a long and tedious process and I don't know why anyone would willingly do so in bad faith.

I've already done some research on inflation numbers where I look at a wide number of recurring costs and compare it to the alleged 2% rate of inflation: https://lotide.fbxl.net/posts/32322

It isn't an anecdote when you can look up data from 20 years ago and see that prices for the same thing have gone up on product category after product category. At that point if you're looking at the prices, it isn't an anecdote anymore. It's based on several actual data points. You could argue my methodology is poor, but ultimately it does represent real data and not anecdotes.

Now if you want to ask me how to measure inflation, I think that's a good start -- look at a basket of goods and the prices people pay for those goods, especially as a proportion of an average family's budget that thing is. Now you might go "Obviously that's what they do", but that's not true. In the early 2000s in particular, they added things like hedonic adjustment where you can say "chicken 20 years ago cost much less than today but it's better chicken so even though you're paying more we're going to say you're paying less". Or substitution, where steak went up but you moved to chicken because you can't afford steak so there's no inflation, and then you moved to organ meats because you can't afford chicken so there's no inflation. In addition, there are situations such as "owner equivalent rent" which asks homeowners how much they think they'd have to pay to rent a home equivalent to the one they own. It's proven that this value is consistently lower than actual rent people pay and so it helps reduce inflation.

The provided shadow stats link proposed using the same inflation calculations used in the 1970s before the calculations were revised to show lower values, so there's an example of data people could use. As the shadow stars link shows, if we had continued using that number then inflation would be considered consistently higher than it does under the current methodology. Given that I provided that link, it's disingenuous to suggest I'm suggesting metrics can't possibly be taken.

When I say "They change the inflation number so inflation stays down", it should be obvious I'm not referring to the actual experienced inflation. I'm referring to the measured numbers being lower than are actually reflected in what people actually buy.

It's part of the core problem of measurement and business control, that you can have a value that's important and measured and controlled, people will find ways to make sure the number looks better, even at the cost of not actually improving the actual metric. This isn't limited to economics, it's something management schools such as the Harvard Business School in their Harvard Business Review magazine have written about at length, because good managers (and arguably government consists of managers) need to be cognizant of the effects that measurement and control can have on values separate from the reality we're trying to measure and control.

I'm not arguing that government is impotent and omnipotent. It doesn't have to be either for what I said to be correct. However, economics is the study of incentives, and the incentives are powerful for government to fudge the numbers with respect to inflation. If the government measures inflation low, then they can claim a chunk of prices going up as economic growth. It can claim a chunk of the debt it runs up is just keeping pace with inflation. It gives the central bank an excuse not to fight inflation, since fighting inflation is a really painful thing. None of those incentives represent an omnipotent or impotent organization, but one made up of humans who prefer to do the thing that's incentivized for them. When everyone has the incentive to do the wrong thing, it's likely everyone will go along with doing the wrong thing.

If you'd like an example, when Ronald Reagan was president, the national debt was about 1T dollars. Since then, every president since has roughly doubled the national debt. Reagan more than doubled the debt (according to FRED, the debt went from about 1T to about 3T), and since then every president has taken on some form of his "spend more money cut more taxes" regime, and the democrats and republicans have been in the presidency roughly the same amount of time, and they've often been in congress about half the time, and it doesn't really matter, whoever is president, whoever is in congress, whoever is in the senate, the debt has about doubled since the very late 1970s. (there was a brief reprieve during Clinton's presidency, but it's highly arguable that one of the reasons they could do that was the unprecedented dot com bubble and surrounding economic activity) It's obvious that this will lead to problems down the road, but the incentives are such that it's very difficult to get elected on a platform of raising taxes and cutting spending. It's one of the dangers of democracy Plato warned about.

Of course, that example also shows some of the strong incentives for keeping the inflation number low.

If inflation can be said to be low, then central bank interest rates can be kept low, and that'll help keep overall debt costs low by ensuring there's lots of money in the monetary system to buy that debt, which will help keep debt service costs low, which means borrowing is easier to justify since the cost of borrowing is low. We're seeing that right now, where in spite of only a relatively small increase in nominal debt, the debt service costs have doubled, and they're on track to increase considerably more.

In addition, if inflation is reported as low, then government costs that are indexed with inflation can be kept lower. For example, social security is indexed to inflation, but despite that fact nearly half of baby boomers are considering re-entering the workforce because the cost of living is in fact rising faster than official inflation values. In addition, the government sells inflation indexed bonds, and as much as inflation can be downplayed, every basis point is money in the government's pocket.

If inflation is reported as low, then that also changes the econometrics elected officials can run on, and it changes the required strategy moving forward. If inflation has been 2% from the end of the GFC around 2009 to the beginning of the pandemic in Q1 2024, then it was the longest period of economic expansion in history. If inflation was 6% or more, then it was the longest economic decline on record. If inflation is low, then it justifies continuing availability of debt which feels really good. If inflation is getting higher, then the availability of debt must be restricted which under conventional macroeconomic theory will cause a reduction in economic activity. If

Again, none of these incentives require the government to be omnipotent or impotent, they're just incentives that exist and will promote certain behaviors generally within government.

The issues with econometrics have been well understood in other contexts as well. For example, the famines in both Mao's China and the Soviet Union were both caused by perverse incentives surrounding reported data. In both cases, the people in charge were incentivized to make their numbers look good regardless of whether they actually were good or not, and then the leaders looked better than they actually were in the short term at the expense of the people and decisions were made that had negative consequences because they were based on bad data. That case was a lot more direct, but human beings react to incentives, and it doesn't need to be "Mao will have you shot" to modify people's behavior significantly, and it doesn't need people to be actively trying to lie or be malicious to affect reporting or design of econometrics to the detriment of understanding the real world data.

My comment isn't really about the Washington Post per se (Their motto to me is "Democracy dies in the darkness we provide"), but about the reality of econometrics and economic central planning. Many large newspaper outlets have found themselves in a bind lately because they've published articles saying "things are better than ever before, why are the dumbdumb lower classes incorrectly believing things aren't great?", which has been really embarassing. The same newspapers have been facing declining subscriptions and large layoffs because they're publishing things that nobody believes anymore.

https://www.washingtonpost.com/business/2022/10/22/gdp-growth-economy-inflation/

https://www.washingtonpost.com/business/2023/08/07/us-economy-is-strong-so-americans-should-stop-worrying-about-it/797761a8-350d-11ee-ac4e-e707870e43db_story.html

https://www.washingtonpost.com/opinions/2024/05/28/economy-gloom-voters-inflation/