Economic Predictions and Partisan Bias

Submitted by
CalculatedRisk on Mon, 08/14/2006 - 11:56am (29 comments)
Anonymous wrote on Mon, 8/14/2006 - 1:40 pm

I'm not in any camp - I hate Republicans and Democrats equally, and I am STILL bearish!

the_economist wrote on Mon, 8/14/2006 - 1:54 pm

I think the economy is a step or two away from the proverbial banana peel.

howard wrote on Mon, 8/14/2006 - 2:08 pm

does professor kling believe that the business cycle has been repealed? if he does not, then surely he acknowledges that there will be a recession in the future. if we are forbidden to imagine such a recession could occur somewhere in the next 28 months, what kind of bias is that? it sounds to me like a bias against hearing anything negative about the bush-league economy!

personally, i think we're already, for most people, in a period of stagflation. that doesn't have to lead to two consecutive quarters of negative growth, of course, but given that the drivers of growth under the bush administration have been keynesian stimulus and the housing market, and at least one of those two is clearly weakening, why does prof. kling think that we can't have a recession?

Captain Spaulding wrote on Mon, 8/14/2006 - 2:09 pm

Maybe Kling needs to reevaluate his own political biases.

Another thing I rarely see mentioned with respect to the current economic situation -- which also has relevance when looking back to 1994 -- is the effect the "War on Terrorism" is having on the the U.S. economy.

I also believe that the Clinton trade policies are, to a certain extent, coming home to roost. I have in mind, in particular, NAFTA and its various cousins. This seems to me to have had a terrible effect on the U.S. job creation, much as Ross Perot predicted.

Given my own political biases, however, I'd love to be proven wrong on that score. Wink

IM wrote on Mon, 8/14/2006 - 2:28 pm

Let´s start saying that it is impossible not to be biased. I would be happy with the economical growth if it was to be distributed in a more igualitarian way. What I perceive is that growth goes mostly to the very wealthy and that explains why the savings rate has deteriorated so much.

Thus, I prefer an economical slowdown IF it serves to change the political drift we are witnessing. That is my bias.

Anonymous wrote on Mon, 8/14/2006 - 2:35 pm

The popping of the real estate bubble will be no differnet from any past bubbles popping. There will some gigantic scandal(s) like Enron,WorlCom and etc... that will kill the market.
But this time it will be worse since the Fed cannot create any more bubbles to save the economy.
The question is which company will the scandal(s) come from this time e.g. banks,mtg lenders, builders?

dryfly wrote on Mon, 8/14/2006 - 2:53 pm

CR - I think the biggest difference between now & '94 is technology - you mentioned that briefly but think people underestimate how significant a booster it was THEN and how little a bump we get from it now.

I am talking classic Schumpeter effect.

Prior to say 1990 it was more difficult for me to communicate with companies on the East Coast via dial up land line phone then it was by mid-90s to communicate with companies in Asia, Europe or Israel via mobile phone & internet. A world of difference - excuse the pun.

Add to that the digital integration I saw on factory floors all across America about that time - and we in the US led the way with this stuff. Back then a company could take on low wage competition with networked high speed automation if the low wage competitor was still running manual from a dirt floor.

That was the real dot.com revolution - not in Silicon Vally - but at places like the factory floor at the John Deere Tractor Assembly Plant in Waterloo Iowa or Caterpillar's Mosseville complex outside Peoria. Huge wages, full benefits and they were both in growth mode. They could find people fast enough.

It was like that all across middle America. Similar stories in financial world & banking. Medicine & aerospace too. Office automation made all the difference.

Some of the benefit from those REAL productivity gains went to stockholders & bondholders for sure... but some went to workers too (and not all of it upper mgmt).

But that technology lead is now gone - or most of it. Technology innovation rate of change has slowed and the rest of the world has or is catching up... now its back to who can be cheaper and we have a lot of falling before we get even close to cheap.

That's the difference between now and '94. There may be a boom but it won't be here.

I don't blame Bush for this - these innovation waves come in cycles & he can't control that. I DO blame Bush though for not making this patch less painful on working poor & middle class. I don't think he can cure the disease but he could help moderate the suffering. And unless the trend changes the suffering will increase.

IMHO-YMMV.

Jaymay wrote on Mon, 8/14/2006 - 2:59 pm

The fact that you are taking this moment for reflection and self-criticism is a very good sign. You're not just blindly bashing the other side.

The housing factor is huge. But I can think of one more tiny difference between now and 1994.

It's a little thing called The Internet.

The rise of the internet, which started in earnest in 1994 (I joined AOL in '94, and was probably on of its first 200,000 members) was not only an information revolution, it increased efficiency in the markets by leaps and bounds and created a period of infrastructure investment which hadn't been seen since WWII.

You could make the argument that if the internet hadn't arrived when it did, we might have gone into recession in 1995. Of course, I like to believe that it was Clinton's policies that saved us. Wink

Peter wrote on Mon, 8/14/2006 - 3:00 pm

CR

I see that comparison time and time again that this is simply a 'pause in the economy' like in 1994- the opine of Strategist Tony Dwyer; from Raymond James Jeff Saut today;

And that, ladies and gentlemen, is a question investors should currently be considering. Another more tactical question was posed by market strategist Tony Dwyer, who suggested in the conference’s last panel discussion, “The question investors should be asking themselves is if this is just a mid-cycle economic slowdown, or something worst?” In Tony’s mind this is merely a mid-cycle slowdown with no recessionary overtones. The rest of the panel, however, was not so sanguine. Vicis Capital’s co-founder John Succo framed the panel’s discussion, much the same as Todd, by noting that there is a major difference between an income-driven economy, where incomes are re-invested, thus sustaining the economic expansion, and an asset-based economy that “feasts” on ever increasing debt. Also speaking on behalf of Vicis was Scott Reamer, who noted (as paraphrased by me):

As you pointed out so well CR housing was coming out of the dumper in 1994- now is sinking into a deeper one then the period 1989-1995.

From debt to deficits, energy and the 'war' its a totally different looking dynamic. Mr. Klinger needs to take off the rose colored glasses- and reject the 'newspeak propaganda' given out by your 'mendacious' Bush and his fascist cronies.

Recession? Yes likely-

dryfly wrote on Mon, 8/14/2006 - 3:10 pm

The poll was conducted with investors who have at least $100,000 in financial assets, excluding real estate and employer retirement plans. Citi said that this demographic includes about 25% of all U.S. households.

Two ways to look at that...

One is to laugh at Citi's definition of 'wealthy' for the survey... some how I bet their folks pitching services to high net worth individuals look at it differently (they know wealthy when they see it - drool & sweat - $100K won't excite them too much).

Or to consider that if 25% of the population have a 'net worth' of $100K or more... including their equity in real estate... that means 75% have LESS THAN that.

And considering something like 75% home ownership in this country... and the run up in real estate prices... then those numbers suggest that even with all that, most people have almost NO cushion heading into the next down-turn (recession).

Maybe I'm reading too much into those numbers but that little peek gave me shudders.

CalculatedRisk wrote on Mon, 8/14/2006 - 4:09 pm

I agree completely with the comments on technology in '94 (dryfly and Jaymay mentioned this). In hindsight technology really drove the economy. I was working for a high tech company at the time, so I was definitely excited about what I saw happening.

dryfly, that $100K is in financial assets, excluding real estate - so its not that bad. It still isn't "wealthy", but it is probably a good group to survey.

Best to all.

dryfly wrote on Mon, 8/14/2006 - 4:51 pm

dryfly, that $100K is in financial assets, excluding real estate - so its not that bad. It still isn't "wealthy", but it is probably a good group to survey.

Oooops, my bad. See it's a good thing I don't write a blog - I'd be correcting stuff all the time - that is if anyone took the few minutes to read it & find the mistakes... they'd be there.

And you're right - that is a good group to survey. Folks in the Hamptons will be okay no matter what... unless things get so bad we toss them down Potemkin's steps.

DoctorWho wrote on Mon, 8/14/2006 - 6:26 pm

Jesus wept.

You old ladies still have nothing better to do than hand wringing, navel gazing and pining for the good ol' days?

What lies 12 months ahead? Couldn't care less. What's the 5 year outlook? I'll bet my hard earned on the US.

Pull yourselves together.

VoiceFromTheWilderness wrote on Mon, 8/14/2006 - 6:29 pm

I'm not an economic professional, but from a geopolitical perspective this is not 1994. In 94 we were celebrating the end of a 50 year war, in 2006 we are starting a new 100 year war. In 1994 oil was as cheap as it had been in 50 years, now we have decided to foment warfare, and destabilize regimes we don't like through violence, and destabilize regimes we do like through loose, uninformed, naive talk about 'democracy', in the very region that supplies us with oil. In 1994 it was still true that a BS in an engineering/science discipline was a ticket to a good job, and hence created lots of good consumers. Now our owners have sent all the tech jobs to India -- whose going to buy those war bonds? The Indians?

We'll be lucky if this is 1965 and the end of the war is only 9 years away. If this admin has it's way the war is only just getting started.

Naren wrote on Mon, 8/14/2006 - 6:41 pm

The WWW took off in 1993. That powered the American economy in the late 1990s

Tom Marney wrote on Mon, 8/14/2006 - 6:45 pm

As I see it, the imbalances affecting the US economy must and will be resolved at some point, and the sooner the correction occurs, the less traumatic it will be. So the bears are actually the optimists. But so far our optimism hasn't been justified by the facts on the ground...

sharkbait wrote on Mon, 8/14/2006 - 6:45 pm

Quite right dryfly -- technology made the 90's look great. No tech boom nowadays, housing in decline, cheap labor in chindia. All that means less money for hard working republicans votin like they were told in church. But they got themselves a friend in the white house. They got more tax and rate cuts comin their way. Unfortunately this will just delay the inevitable -- wages in the US must come down (in relative terms) to compete with chindia.

vader wrote on Mon, 8/14/2006 - 6:52 pm

Lets count the ways in differences.

A losing war-gee a biggee

Tech - the internet was expanding, now it is a comodity. PC tech all over was exploding. Now I can pick PCs out of the trash that are capable or get one from Dell in the $300 range.

Terrorists with an atittude-Iran and now Lebanon. Folks that are willing die and let their children die to be in the arms of Allah. Our folks don't wish to die to be in Jesus' arms dispite all the talk. Better to bash evolution and gays.

Middle east in turmoil at peak oil prices.

Israel losing a war with insurgents.

A bubble that most of the population is invested in.

Declining or marginal wage increases for the majority of the population with little or no hope of things changing.

Huge debt.

Looks like a mouth full of differences to me.

Robert Campbell wrote on Mon, 8/14/2006 - 7:32 pm

To add to what Vader said, how about the diffeences in the American savings rate?

1994 - plus 6-8% savings rate

2006 - minus 1% savings rate

IMO, that's either housing market arrogance or plain stupidity ... or maybe both.

T.R. Elliott wrote on Mon, 8/14/2006 - 7:59 pm

You mean EconLog is about Economics? Could have fooled me. I've never found much in the way of useful economics over there. Mainly ideology. Kettle calling the pot black in my mind.

vader wrote on Mon, 8/14/2006 - 10:42 pm

One other thing about the right is that they will beat their breast and yell political bias at the left while engaging in mind control of their own.

Almost any time Bush or his policies get bashed, it is described as rank partisan politics, and those who adhere to the party line are patriots.

So I would never mind the charges.

Keep in mind we all are biased. Some of us are indeed partisans who figure that economic dificulties will unseat the GOP, but even that crew would be a whole lot quieter if the ecomony was booming or even meeting the party line. Instead our parisanship is fed and increased by the crap we see. Crap that remains crap regardless of the color of the lens it is peered through at. And only social control by attempted shunning or demonization keeps the fathful calling the crap something flavorable.

I have been anti bush all alone, but it is increasing so. At first he was only the margionally greater evil than Gore. Had he won military, I'd be impressed and quiet. Had he migated the economic fallout and spread it across the citizens I'd be quiet and impressed. Winning covers a lot of sins.

But for the most part he is a loser.

Sestina wrote on Tue, 8/15/2006 - 4:21 am

CR,

Excellent point about the energy companies oversized contributions to profits this time around. The USA Today article doesn't talk about the other big contributors to the profit picture, but right behind energy is the financial industry and the various real estate industry participants.

The bulls seem to think that flagging consumer spending is going to be made up from companies using vast profits to increase capital spending. I see this point repeated over and over in the financial press. The big energy companies don't expect these prices to hold and are keeping their powder dry (If you ever get a chance, check out Ben Dell, an oil industry analyst. he's occasionally interviewed on bloomberg). And, as dryfly points out, when they do spend, it won't necessarily be here.

If you ever come upon a distribution of cash reserves or earnings by industry segment, please post it.

liberal wrote on Tue, 8/15/2006 - 6:30 am

CalculatedRisk wrote, Back in '94, I remember it was very lonely being bullish. I still get congratulations for my VERY BULLISH call in Dec '94. I'm sure the market bulls are feeling pretty lonely now too.

I was lucky enough to have my first "real" paying job (real = enough to allow me to save) in late 1994. Which meant I started putting money in equity funds then.

A couple years down the road, I kept wondering about what was so special about 1994. My conclusion: the Republicans took control of the House, which the investor class loved.

So let's not entirely discard the importance of ideology.

About the impact of tech: I knew enough about computing to be very sceptical in the late 1990s of the "internet revolution" (especially considering past history of the economics of the dissemination of and profit from new technology), and got out of the market near if not at the peak.

Jim wrote on Tue, 8/15/2006 - 6:45 am

Biases aside, one of the indications I look at is could I buy a home now with my current job and education? I could in 1975, again in 1984 and again in 1991. That was moving around California and the US for new jobs. Now? I can only weep for new kids moving into the job market. How can anyone starting a family and fresh out of high school or college buy a house in SoCal? Or anywhere in California within commuting distance of a job?
All the talk of using homes as ATMs tends to obscure the fact that some people would like to use homes as shelter from the elements. Some of us would even like to spend time at home instead of working two jobs to afford shelter.

Detroit Dan wrote on Tue, 8/15/2006 - 7:21 am

"I am strongly in the "Bush is the worst" camp, not because Bush is a Republican (as Kling suggests is the source of the bias), but because I believe Bush is incompetent and mendacious."

Agree

"I prefer an economical slowdown IF it serves to change the political drift we are witnessing. That is my bias."

Agree

"As I see it, the imbalances affecting the US economy must and will be resolved at some point, and the sooner the correction occurs, the less traumatic it will be."

Agree

"I don't blame Bush for this - these innovation waves come in cycles & he can't control that. I DO blame Bush though for not making this patch less painful on working poor & middle class."

Agree

"In 94 we were celebrating the end of a 50 year war, in 2006 we are starting a new ... war."

And losing it.

Over the last 4 years my suspicions regarding the incompetence of the Bush Administration have been confirmed time and again.

Anyway, it's good to consider the possibility that we may been wrong.

Best to everybody...

the_lingus wrote on Tue, 8/15/2006 - 8:20 am

Sadly enough, even after the onslaught of this hollowed out economy, the supply side freaks still have a voice, although its fading. This idea that enormous tax cuts for the top 5% is good for the economy, yet bankrupting the treasury no longer has much traction. It's a LIE. Greenspan, Henry Paulson and Ben Bernanke all stated "there is no evidence that tax cuts pay for themselves" seems to elude the brain dead supply siders.

Neal wrote on Tue, 8/15/2006 - 12:08 pm

Not brain-dead supply siders, just people who know what side their bread is buttered on. They know that if you don't have your fortune now or are not in the process of consolidating it, you will never get one at all. Outsourcing of the executive and financial unctions of companies is not far off. The world is full of smart people.

Ryan wrote on Wed, 8/16/2006 - 6:40 pm

The internet in 1994 = Cheap Labor from illegal aliens in 2006

Will it be enough for a soft landing? I'm going to take the middle ground. I think we're in for a real serious slowdown that falls a little short of a recession.

zink wrote on Wed, 8/16/2006 - 9:04 pm

The CPI and PPI were softer than anticipated causing the equity markets to rally. The softer inflation numbers seem to be a classic result of the onset of a recession.

Fire sale pricing of American autos were a prime deflationary factor as was the unprecedented decline in housing employment and sales. Unemployment, in general, actually increased during July (the market rallied) causing the Fed to pause even in the face of raging commodity inflation (the market rallied again). Today's manufacturing reading was down sharply and housing sales and new starts fell out of bed (the market rallied).

GDP growth was reported at 2.5 % in Q2 a sharp decline and a reading below "trend" ( the market rallied). Given the large downward revisions in prior GDP measurements over the last three years (wink,wink), the Q2 number has a very good probability of being revised downward and the inflation rate upwards in the next revision go around.

I think we may already be in, or about to enter the ..... Recession zone ala the Japanese asset bubble circa 1990.

We need more 1 % Fed Fund Rates to keep this baby afloat.

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