Retroactive Economics

http://www.nytimes.com/2009/09/11/opinion/11fri1.html?emc=eta1

http://www.nytimes.com/2009/09/11/business/11bailout.html?emc=eta1

http://online.wsj.com/article_email/SB125259099642699581-lMyQjAxMDI5NTEyMTUxOTEwWj.html

According to the Census Bureau's annual snapshot of living standards, median household income has continued to get worse: adjusted for inflation, it fell 3.6% last year to $50,303 - the steepest drop in 40 years. The poverty rate has continued to climb (now 13.2%) and about 700,000 more people didn't have health insurance in 2008 versus the year before (WSJ 9/11/09, attached: click on the "interactive graphic" within the article to look at the 20 year trends). In Texas, the number of uninsured has crept up to more than 25% of the state population.

As today's NY Times editorial states, the overall number of uninsured rose from 45.7 million in 2007 to 46.3 million in 2008 (NY Times 9/11/09, attached). See our 8/24 post on how those health insurance "numbers" break down.

According to Bruce Meyer, an economist at the University of Chicago, "It's striking how fast and how far the incomes of the typical family have fallen...and things are almost certainly going to get worse." The Census Bureau's report captured only how Americans fared in the first year of the recession, which began in December, 2007 ( economists denied, at the time, that a recession had begun because the U.S. GDP growth rate had NOT gone down for two consecutive quarters - two quarters later, it had gone down so a recession was declared: we call this "Retroactive Economics". It's like "Behavioral Economics", only backwards.). Figures for 2009 will be worse.

Oh, and was that Timothy Geithner testifying before congress (NY Times 9/11/09, attached) this week that the administration is comfortable with backing off some of the stimulus efforts because the economy is "coming back?" So, the lessons of 1937 (when Franklin Roosevelt did that and things got worse) were lost on the understaffed Secretary of the Treasury?

Perhaps the 2.6 million people who were added to the official "poverty level" population last year (earnings under $22,000 for a family of 4) would be interested in discussing this issue with the Obama administration. According to the census, about 54 million people were living under 125% of the poverty line.

So, that pernicious "lagging indicator" (the jobless rate), which will be up in 2010, won't have as much "fiscal stimulus" chasing it if Secretary Geithner takes the actions he told congress he would. If, for the sake of argument, unemployment averages 10% for 2010 (and it will), that would be 2% above the unemployment rate the Obama administration said, when it went to congress for "bailout money", would be the maximum: in other words, the "stimulus" money would keep unemployment from rising above 8% according to Lawrence (don't call me "Larry") Summers and the Obama economic team. So, unemployment is now, or will shortly be, 10% (or more), which is 2% above what the original stimulus proposal was supposed to cap it at. And, we're going to cut back on stimulus spending because we don't need it as much now. I'm guessing this means that there is an economic model someplace that says the way to achieve the number you missed because you didn't spend enough is to spend LESS!

Since I'm not an "economist", I don't have to get all confused with "fuzzy math" and economic models that I'm sure explain the difference between 8% and 10%. Perhaps it has something to do with retroactive observation: sort of like not declaring a recession until we observe two consecutive quarters of negative GDP growth. I'm sure that the economists could explain that old saying about closing the barn door after the horse was already out. It's probably some sort of retroactive deal again.