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 Later this week, the federal government will issue a report on the economy. The report is expected to declare the worst recession since the 1930s to be officially over and point to signs of recovery. But will the people believe it? At least one recent poll, conducted last week by the Washington Post and reported by ABC News, suggests not.
Perceptions over the true state of the economy and what we can expect in future months have been widening. In a sense, there has long been a gulf between what the economics professionals have said and what the observant public believes. Ronald Reagan made this concrete with his famous quip, “a recession is when your neighbor loses his or her job. Depression is when you lose yours.”
According to the professionals, including the National Bureau of Economic Research and of course the Bureau of Labor Statistics, this recession officially began in December 2007. We didn’t see acknowledgements that the economy was in a recession, however, until the summer of 2008. Members of the public had been talking recession for at least six months; a few contrarian investors had been seeing trouble on the horizon for considerably longer than that.
None of this would surprise the professionals. They rely on a precise, technical definition of when a recession begins: two or more straight quarters of negative economic growth. This means, though, that the beginning of a recession can only be identified at least six months after the fact.
Rising unemployment, of course, urges upon the common people the view that the economy is in trouble long before the professionals are ready to make any pronouncements. The common people are relying on their immediate perceptions, of course, as the Reagan quip makes clear. The professionals are consulting reams of statistics.
There are also differences in perception of the true severity of unemployment. According to the professionals, the present unemployment rate stands at about 9.8 percent and is expected to climb to slightly above 10 percent over the next several months. This measure relies on a technical definition of the labor force: those who are out of work, have applied for unemployment benefits, and have actively sought work during the past four weeks.
Right now, there are some 15 million people unemployed and actively seeking work. Add to this the actual pool of unemployed people who, for one reason or another, are not presently seeking work, and the number grows much larger. A “shadow” unemployment statistic would include those who used to be in the work force but after being laid off returned to school to obtain new skills. It would also include those who were seeking work but have simply given up, unconvinced that there are any jobs to be had (so-called “discouraged workers”). We have seen, over the years, documented concrete changes in how the unemployment rate is to be measured, as well as in other concrete indexes of how well the economy is doing.
Moreover, the official statistics do not distinguish between those who are working full-time and those who are working part-time and seeking full-time work. Both are considered employed for the professionals’ (and the government’s) statistical purposes.
The government’s report, due out this Thursday, is expected to state that the GDP is now growing at an annual rate of roughly 3 percent. The economics professionals will say this validates their view that the recession ended this past summer (June or July).
Federal Reserve Chairman Ben Bernanke has already stated, “From a technical perspective, the recession is very likely over.”
The report is also likely to predict that unemployment will continue to rise. To the common man relying on his perceptions, these two surely can’t be true at the same time. As an observer of the passing show he will wonder, Are we again going to have to listen to the same “jobless recovery” talk we were subjected to during the early Bush years — as the housing bubble was being built up on credit expansion?
According to the poll issued last week, 82 percent of those polled disagree with the professionals about the recession being over. Those who are out of work, or who cannot obtain loans to start small businesses, will probably continue to scoff at the professionals.
The difference, of course, is a difference in method. The professionals regard economics essentially as a branch of statistics. From their standpoint, what we might call the “human element” is irrelevant. “Lay economists,” we might call them, do not necessarily regard statistics as irrelevant or even as unimportant, but they definitely view economics as about flesh and blood human beings, not abstract entities. According to this point of view, when flesh and blood human beings are suffering, the economy is suffering. After all, what more is there to the economy than the actions, interactions, and transactions of millions of flesh and blood human beings?
One has to see the “lay economists’” point. The gulf between the two perceptions — assuming Thursday’s report says what the professionals are predicting — certainly threatens the Obama Administration. The same poll indicates that only 41 percent of Americans think Obama’s economic policies are making things better, which is perhaps why so many oppose more federal spending on economic recovery efforts that would increase the federal budget deficit — and also why Obama’s approval rating for his handling of the economy has dropped to 50 percent and his approval rating for his handling of the deficit has dropped to 45 percent. If Obama takes a public stand that the recession is over and the public doesn’t believe him, his approval ratings could drop still further. After all, with the economy clearly in a near-vertical nosedive, George W. Bush’s approval rating had dropped to just 23 percent by one year ago — the second lowest approval rating in U.S. history.
The widening gulf between professional economists and the perceptions of the “lay economists” among ordinary people may also fuel a growing populist distrust of Wall Street, big banks, and others seen as components of an “establishment” that is hostile to their interests — and perhaps hostile to the best interests of this nation and its sovereignty. After all, the concrete signs of recovery being pointed to raise more resentments than they do solutions. Stocks, it is true, have largely rebounded following their March lows; the Dow has been hovering around 10,000. What happens on Wall Street, however, has barely touched Main Street. Banking titans such as Goldman Sachs, moreover, have shown huge profits; those in the upper echelons of Wall Street firms and other top-tier corporate entities are obtaining millions in bonuses while John Doe’s small business struggles for survival and his college-educated son is living at home because he cannot find a job.
All of these disconnects are turning our attention, perhaps more than ever before, to these differences in perception — and the differences in methods used to determine economic health in this country. The professionals will no doubt cite government reports (and Fed reports) stating that the economy has entered a recovery phase — qualified, perhaps, with the reminder that this was the worst recession since the 1930s and that the recovery will be slow. The mainstream media will no doubt quote these reports as the final word on the subject. But until there is real job growth and real benefits to flesh-and-blood human beings, the lay economists are going to remain skeptical about the official pronouncements.
Steven Yates earned his Ph.D. in philosophy in 1987. He is the author of one book, Civil Wrongs: What Went Wrong With Affirmative Action (San Francisco: ICS Press, 1994) and numerous articles both in academic journals and elsewhere. He has taught philosophy at Clemson University, Auburn University, Wofford College, the University of South Carolina, Southern Wesleyan University--Columbia, and Midlands Technical College, and has held fellowships with or worked on projects with the Institute for Humane Studies, the Heritage Foundation, the Heartland Institute, and the Acton Institute for Religion and Liberty.
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