A Framework That Provides Clarity

During periods of “low visibility,” confusion reigns: for every indication of one trend, there seems to be a countertrend. The key is to glean from the collective wisdom of reliable leading indicators a clear signal that the economy is headed for a turn.

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Jan 26 2017

Cutting Through the Confusion

A key reason November’s election results shocked the consensus was that a litany of standard statistics, designed to measure aggregate economic activity, showed the U.S. to be a long way from the depths of the Great Recession, having enjoyed the longest stretch of positive job growth on record. Few mainstream economists had bothered to dig below the surface of those headline numbers to understand how the fortunes of so many had diverged from those reassuring aggregates.

Accordingly, we summarized the long history of our research into the roots of the economic grievances many had expressed through their votes. This meant reaching back a couple of decades to lay out the record of ECRI’s pushback against the “happy talk” that had dominated consensus views over the period. In particular, we detailed how economic outcomes had differed by age, education, geography, and full time/part-time job status, as well as by race/ethnicity. What we showed, “[d]igging deep into data that do not conform to cyclical patterns [were] structural anomalies that economists wielding fancy macroeconomic models [had] overlook[ed] for extended periods.” These details, “properly scrutinized, have long revealed the sources of anger and despair with the way the 21st century has sorted winners and losers” (USCO Essentials, November 2016).
A few weeks later, a New York Times reporter reviewed our work and wrote an explanatory story focusing on the racial/ethnic disparities in job gains since the eve of the Great Recession. Because it contradicted the received wisdom among establishment economists, that news story aroused a firestorm of criticism, mostly to the effect that the differences were all about demographics, and thus illusory. In a rebuttal (based on ECRI analysis) that quieted the critics, the reporter presented our charts laying out the details of job gains and losses by race/ ethnicity as well as age group. The Washington Post then picked up the story, followed by popular liberal blogs. It was then included in a detailed article in The Atlantic, laying to rest the standard excuse that the Democrats’ election losses were due to their failure to effectively communicate the reality of an obviously healthy economy.
In early January, the PBS NewsHour produced a segment summing up President Obama’s economic legacy, featuring a conversation with leading mainstream economists. Underscoring the extent to which that standard Democratic explanation — initially proffered by President Obama himself — had been discredited, the PBS report featured a single chart — a simplified version of the one we had presented back in November, showcasing the differences in job gains and losses by race/ethnicity. Asked to explain the data, none of the economists, liberal or conservative, could muster a real response.

In sum, the nuanced understanding of the lay of the land afforded by ECRI’s unique perspective has crystallized as a key element of the emerging consensus about President Obama’s economic legacy. However, those details had been evident from our economic analysis, cyclical and structural, for years.

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