Kinsley left a comment on my post, but I want to make sure it doesn’t slip through the cracks. Here’s his response in full:
Ryan [Chittum] [correcting a misspelling of my name] writes that I “flub the numbers and the argument” in my Politico column this week. He does not understand my argument: I’ll take the blame for that. I guess I wasn’t clear. I’ll take the blame, too, for one wrong number. It’s not a math mistake, and it doesn’t affect the argument I was trying to make. Chittum will have to take the blame for his nasty tone.
My point was not that economic distress “is more of a feeling than a reality,” as Chittum summarizes. In fact he quotes—and then ignores—what I say high up in the piece, which is that many people are “suffering, losing their houses or their jobs.” The column had two purposes. First, it was an attempt to puzzle through why this should be the case when GDP in real terms is about the same as it was in 2007, when times seemed good. I concluded that the main cause of this is growing disparities in wealth and income. If a few have more and most have less, the total can still be the same. Chittum quotes this passage also, and then ignores it.
My second purpose concerned the deficit. It was to argue that despite all the talk (from me, among others about the “sacrifice” needed to solve the deficit problem, these GDP figures suggest that the sacrifice would not be all that great, if we were all willing to go back to where we were financially in 2006 or so, when times did not seem so bad. the difference between then and now would be enough to solve the problem.That would involve a greater sacrifice by wealthy people, who would have to give up their disproportionate share of economic growth (a point I didn’t make but should have). I suspect that many of the unemployed and those who have lost their houses also wouldn’t mind going back to where things stood in 2006. Maybe this is a dumb point, since there is no way we can actually go back to 2006. I thought it was interesting. Mea culpa.
It’s true that this is all about income, and even those who still have jobs and houses have taken a big hit in wealth, at least on paper. But the houses are still there, as are the factories, etc., that are represented by shares of stock. Is their true value represented by their price in 2007, or their price now? In a way, the whole economy depends on what theatre types call the “willing suspension of disbelief.”
I am a deficit hawk. I think the national debt is having serious negative consequences, and there is no sign of anyone doing anything about this. (I don’t say do something about it now, when we’re still coming out of the recession, but do something now that will convince the world that we are serious about doing it later.) I spent the 80s and 90s arguing with conservative Republicans who wanted tax cuts and said the deficit didn’t matter. It looks like I’ll be spending the next couple of decades arguing with liberals who want more government and think the deficit doesn’t matter.
Anyway, my erroneous number, for which I apologize. When I cited GDP in 1985, I said that was in 1985 dollars. In fact, it was in 2005 dollars, just like all the other GDP figures I used in that column. And the point remains true: accounting for inflation (ie, in 2005 dollars), GDP has almost doubled, from $6.8 trillion in 1985 to $13.3 trillion in Q3 of 2010.
Thanks very much.
Kinsley’s right. I totally missed that point, and I wouldn’t have been so pointed in my criticism if I had understood it. I apologize for that. His line asking, “Why are so many actually suffering, losing their houses or their jobs?” should have been a clearer signal of his point.
I’ll note, though that I was hardly alone in missing it: So did many of his commenters over at Politico.
In re-reading it for the fourth or fifth time, I still don’t think the piece really holds together. It’s paragraphs like this one, for instance that led readers astray (emphasis mine):
In other words, if we were willing to earn, spend, save, pay taxes and use government services at the level we did in the fall of 2006, and if there were an easy way to extract the difference between then and now, we would have solved the problem. There obviously is no easy way to replicate the situation in 2006, but I don’t recall it as a time of widespread deprivation. The point is not that we can or should duplicate this exercise to balance the budget; it’s that there is no reason balancing the budget should require heroic sacrifices from anybody.
The problem with this is, of course, that it’s government spending—the deficit—that’s keeping GDP at its current levels. Without all that deficit spending, GDP would be much lower than it is now. There’s the whole stimulus package, which added 1.7 percent to 4.5 percent to GDP this year (on top of what it added in 2009).
Then there are the automatic stabilizer programs like unemployment insurance, food stamps, WIC, etc. The government spends much more money on these things during downturns and that money filters through the economy, boosting GDP. The Congressional Budget Office says they added about $350 billion to the deficit this year (compared to zero in 2007), which is 2.3 percent of GDP. That money filters through the economy. Cutting those automatic stabilizers would require heroic sacrifices from a lot of people.
So, while I get the point that the 2007 GDP provided a decent living standard for a lot of people, our current number catching up is in no small part due to the very deficit spending Kinsley bemoans. Taking that away is no cakewalk. It’s interesting to note that the 2007 economy was also, to a huge degree, debt financed. Going back to 2006 or 2007, to a bubble economy built on stupid amounts of private debt doesn’t sound very appealing to me.
Moreover the numbers in Kinsley’s column don’t really hold together. Take this paragraph on inequality:
A more important reason that $13 trillion doesn’t feel as rich this time as the last time we passed through it is the increasing inequality of wealth and income. In 1984, a family income of $81,365 (2009 dollars this time) put you in the top fifth of all American families. In 2009, it took 23 percent more, an even $100,000. To make the top 5 percent required income of $180,000 in 2009, compared with $68,500 (in 2009 dollars) back in 1984.
First, you can’t really use 1984 figures to talk about why we feel poorer than we did in 2007. Second, it doesn’t make sense that $68,500 gets you into the top five percent in 1984 and $81,365 only gets you into the top twenty percent last year. You need to earn more to get into the higher percentiles.
There’s a place for contrarian angles, of course, (though I think they’re overdone), but I still don’t think this piece was particularly well argued.Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at firstname.lastname@example.org. Follow him on Twitter at @ryanchittum. Tags: Deficit, Michael Kinsley, Numeracy, Politico