How is the economy doing? Not so great, thank you. But how is it doing in the real world? A lot better, actually.
Just before the national election, the numbers are in and they look stink-oh. But a little bit of counterfactual math and things look a lot different.
The Commerce Department said Friday that the gross domestic product grew 2 percent in the third quarter, a slight gain from the previous quarter’s 1.3 percent quarter-to-quarter growth.
Is that good, bad or in the middle? Furthermore, is it fair to compare that to Ronald Reagan’s day or Bill Clinton’s or Millard Filmore’s?
The truth is, 2 percent is not so good historically. On the other hand, it’s an enormous achievement. So, what is counterfactual math and why is that helpful here?
Counterfactual math is defined as math that is conditional. That being the case, it is defined well through anecdotes.
Start with President Barack Obama’s frustration over the $830 billion American Recovery and Reinvestment Act of 2009 that did something as under-appreciated as save a whole bunch of jobs, rather than create new ones.
The president’s frustration at the little thanks he got for the stimulus bill is palatable. After all, one could make a case in 2009, when the bill was written (and many did) that $830 billion is a whole lot of money, forgetting that many analysis at the time figured it was not nearly large enough to lift the economy to a degree that many people would even notice. The White House, it may be recalled, toyed with the idea of spending $1.3 trillion to stimulate the economy and by percentage of the gross domestic product even that would have been too small, some said.
But here’s the first lesson in counterfactual perception: The percentage of something is harder to see than the bulk of something, so that it didn’t matter that by percentage of GDP a stimulus-oriented economist would have said $830 billion was not nearly enough. Instead, the overriding public perception of $830 billion was that if you happen to have stacked that up on the dining room table, it would be a very big pile of dough.
And Republicans reminded us that it looked that way. Not a one Republican in the House voted for the stimulus deal and only three Republicans in the U.S. Senate gave it their approval.
By percentage of gross domestic product, $830 billion was far less than was spent to stimulate the economy after the Great Depression, but by volume $830 billion dwarfed what was spent back then. In 1933, that much money could have possibly purchased Europe.
Counterfactual problem No. 2: Many economists now say that it would take a sustained monthly gain of 350,000 jobs per month to lower the unemployment rate. The current rate of 7.8 percent compared to a peak of 10 percent during the recession, is a parlor trick, given more people are leaving the workforce each month than are finding jobs. As such, it is the definition of a hollow victory.
Score one for GOP presidential candidate Mitt Romney. But don’t cast your vote just yet.
Those same economists point out, without hesitation, that the current monthly rate of jobs added to the economy is paltry compared to what is needed.
In September, for example, 114,000 jobs were added to the economy, less than half what is needed to lower the unemployment rate.
But what if the United States was gaining 830,000 jobs per month? Boy that would be something.
And, it turns out, the United States did gain 830,000 jobs in September – just as right as rain.
In the three months before President Barack Obama’s stimulus package was signed into law, the country lost an average of 726,000 jobs per month.
That makes an additional 114,000 jobs look very different. In real terms, 114,000 is not enough, but a policy swing that also stopped 726,000 jobs per month from evaporating and then added 114,000 jobs adds up to a serious victory. That’s a net policy gain of 830,000 jobs per month.
But, to quote President Obama, “It’s very hard to prove a counterfactual, where you say, ‘You know, things really could have been a lot worse.”
He’s pointing to the gains that fail to illicit much excitement, the gains that are very real, but don’t sound very impressive. For example, “726,000 jobs saved this month!” would be a fairly confusing headline. In comparison, “Economy added 114,000 jobs in September,” is a clear-cut, easy to understand headline.
To add to the problem, the president is not making his case very well. He says frequently that he was left with a mess when he took over the White House. But that just sounds like whining at this point.
In point of fact, from March 2001 through December 2012, after former president George Bush’s tax cuts were put in place, the country experienced the worse job growth in the post-war era with the exception of the early 1980’s double dip recession.
No counterfactual counting is needed there. In plain numbers, the era of former president Bill Clinton included an average gain of 178,000 jobs per month, while the Bush track record lays claim to an average addition of 68,000 jobs per month.
This is the essence of counterfactual math. From a standing start, going from zero to 68,000 jobs per month would be weak, but at least it’s a positive number.
But it’s not a positive number in the real world, because a president is not given a standing start, he’s taking over from someone else. That means the effect Bush policies had on the economy included a swing from Clinton’s monthly average of 178,000 jobs per month down to 68,000 jobs per month. That means, the mathematical effect of Bush’s policies was a net loss of 110,000 jobs per month.
Back to economic growth: The country’s gross domestic product is in the black — 2 percent in the third quarter, the Commerce Department said Friday.
Historically, of course, 2 percent is the poster child for an underachieving economy. But that same GDP was at negative 6.3 percent in the fourth quarter of 2008, the quarter before Obama took over the White House.
Again, 2 percent is paltry, but GDP growth of 8.3 percent is handsome enough and that is the total effect of the current policy on the nation’s economic output.
Romney would love to have voters forget that President Obama started at minus 6.3 and then moved the economy to 2 percent growth. If he started at zero and moved the economy to 2 percent growth, that would be a fairly pathetic record.
But a net swing of 8.3 percent is an unprecedented achievement. Do the counterfactual math, the math that is conditional on what is happening in the real world, and Obama’s policies look a lot better.
Still, Obama gets little credit. That 6.3 percent gain it took to get to zero gets lost in the public debate — that’s the counterfactual 6.3 percent that disappears from view, as if it never happened.