Thursday, July 13, 2006

The Economy: it's Subjective, Stupid

Update, 7/17: I made a change in the second graf after the long quote to fix what had been an embarrassing calculation mistake; thanks to "Mathlete in Manhattan" for the tip. Also, did anyone else notice that Krugman wrote basically the same piece in Friday's NYT? I'm calling my attorney.

Interesting piece in the Times today about New York City's economic recovery--I'm tempted to use the Sarcasm Quotes, but won't--since 9/11. The story title, "Report Shows Quick Growth in New York Since 9/11," seems at odds with the substance of the article:

New York City’s economy bounced back after Sept. 11 with surprising speed and is much healthier now than its slow-growing job market indicates, according to a report released yesterday by the Federal Reserve Bank of New York.

Labor market data shows that there are 100,000 fewer private-sector jobs in the city than there were five years ago. But the report, which offers an analysis of the economic effects of 9/11 over the past five years, showed that the city has been recovering at least as fast as the nation by other measures. Most notably, average incomes have been rising faster for city residents than for other Americans, it states.
“People keep asking, why are we 100,000 short of this last peak?” said Jason Bram, a Fed economist and a co-author of the report. “What’s surprising is not how low it is now, but how high it was in 2001.”

Mr. Bram said that at the rate the city was creating jobs, it would take another 18 months to recover the rest of the 225,000 jobs lost between early 2001 and the second half of 2003. But he said his analysis showed that the job market was no weaker now than it would have been had the attacks never happened.
[But] James A. Parrott, chief economist at the Fiscal Policy Institute, a liberal watchdog group, said most of the income gains have gone to wealthier residents, and have not been shared by the typical city worker. He said that the average overall income increase masks the fact that hourly wages of most residents have been declining since 2002, when adjusted for inflation.

“If you look at family costs and energy costs and the cost of health care, I’d be hard-pressed to make the case that real living standards are rising for average New Yorkers,” Mr. Parrott said. “The polarization trend if anything is more pronounced in New York City than it is nationwide.”
Mr. Bram acknowledged that other economists and analysts “have this perception that all the growth is in the high end.” But he said he believed a lot of the job losses had been incurred in low-paying industries like apparel and other manufacturing and that much of the gains had come in the middle of the job spectrum, especially among the self-employed and small businesses.

I know Jason Bram a little bit, and Jim Parrott a bit better. They're both good economists, extremely smart and very rigorous in terms of methodology. Maybe their discrepancy here has to do with their institutional affiliations; the Fed looks at aggregate numbers and makes normative judgments accordingly, while FPI focuses on the middle class and working class. (Full disclosure: FPI also shares office space with one of my freelance clients, the NYC Employment and Training Coalition.)

So maybe it's my own bias, but I think Jim is closer to the mark here. This reads to me (and I haven't seen Jason's report in itself) like the argument over the U.S. economy during the Bush years writ small. One side says, "Hey, we're growing! GDP is up, profits are up, everything's super-terrific!" The other says, "If one guy is making $100 more and five guys are making $19.99 less, that's growth in an aggregate sense, but more people are worse off." Locally and nationally, there's little doubt that the already well-off have done very, very well over the last few years. Everyone else, though, not so much. (Here's a look from FPI and Citizens for Tax Justice at the other side of the story, tax cuts and public debt obligations. This report from the Community Service Society of New York found that, while employment is indeed up, wages aren't: in constant dollars, workers at the 50th percentile of the income distribution were making about $12 less per week in 2005 than they did in 2000, a 2 percent drop. At the 75th percentile, workers earned about $5 more in constant dollars, for anemic 0.5 percent real wage growth.

Allow me to offer a non-academic view: that sucks, especially in a context of overall economic growth.

One of the few things I remember from college PoliSci was that tradtionally, any year in which Gross Domestic Product increases by more than four percent is a guaranteed political winner for the party in power. In the first quarter of 2006, the revised annual growth rate was 5.6 percent, which is spectacular in historic terms. But public opinion consistently gives President Bush and the congressional Republicans low grades on their economic stewardship. Why? For the same reason Jim Parrott disagrees with Jason Bram: because those not part of Bush's "base," or those you'd expect to be in that group based on their earnings, aren't feeling it. When a working family can't pay the bills or put something away or take a vacation, a chart showing robust aggregate growth doesn't much convince them that times are flush.

No comments: