Deserted Islands, GDP and Joe FridayOctober 22, 2012 Posted by: Joe Morgan
So I turned myself to face me
But I've never caught a glimpse
Of how the others must see the faker
I'm much too fast to take that test
- David Bowie
There's an old economist joke about three men stranded on an islandwith nothing but canned beans to eat. Their approach to opening thecans differs due to their professions. The physicist wants to builda giant lever that will launch a can onto a rock, thereby splittingit open. The chemist wants to build a fire and heat the can untilit explodes. Turning to the third member of their crew, aneconomist, they ask his solution. "Well," the extremelyprofessional-looking man says, "first let's assume we have a canopener."
And so it was last week with the Bureau of Economic Analysis'comprehensive revision of accounts. In other circles, this would becalled the "do-over" report. To be sure, every compiler of economicdata has a similar report (hence the popularity of economistjokes), but this is the big daddy of them all. After all, if wedon't know the size or speed of movement of our economy, what useare any other statistics?
Turning to the numbers, we now are told economic growth actuallyturned negative in the first quarter of 2008, instead of remainingpositive until the third quarter. Additionally, the extent of thedownturn last year was supposedly much greater than we wereoriginally told, to the tune of 1.1 percent. In other words, theeconomy was some $150 billion smaller than originally reported.
Under the do-over scenario, we have now had four consecutivequarters of negative growth - the most since data began beingcompiled back in 1947. Strange that we wouldn't know things werethat bad during the bad times, but now looking back, we can berelieved we survived.
The old textbook definition of a "recession" is two consecutivequarters of negative growth. Under either data set, this recessionbegan in July 2008 and is ongoing. But that's the old way ofdefining a recession.
Earlier this decade, the National Bureau of Economic Research(NBER), which resides under the Executive Branch, decided that thedefinition...Read More