by Dean Baker, Center for Economic Policy Research
People who follow economic data know that quarterly growth numbers are highly erratic. For example, the 3.6 percent growth rate reported for the third quarter in the United States was driven largely by inventory accumulations. As a result, most analysts expect growth to be close to 1.0 percent for the fourth quarter. It would be foolhardy to tout the 3.6 percent growth in the third quarter as evidence of a robust economy, while it would be equally wrongheaded to treat a weak number in the fourth quarter as evidence of a sagging economy.
Unfortunately the NYT seemed unaware of the volatility of quarterly data as it touted a strong third quarter growth number as evidence of the success of austerity in the UK. It contrasted this number to a weak growth figure in Japan, which it implied meant the failure of stimulus there.
Of course this claim is absurd on its face. Japan will almost certainly have far stronger growth over the calendar year than the UK, and even more so on a per capita basis. (Japan’s population is shrinking at a 0.1 percent annual rate, while the UK’s population is rising at a 0.6 percent annual rate. Therefore we should expect more rapid overall growth in the UK just to sustain the same rate of per capita growth.)
To take a slightly different measure, according to the OECD, Japan’s employment to population ratio is rose by 1.1 percentage point from the third quarter of 2012 to the third quarter of 2013. This would be equivalent to an increase in employment of 2.8 million in the United States. By contrast, the employment to population ratio in the UK increased by just 0.2 percentage points from the second quarter of 2012 to the second quarter of 2013 (the most recent data available).
The piece includes numerous other inaccuracies, at one point telling readers:
“With an even greater dependence on its financial sector than the United States – but neither the shale gas boom nor a reserve currency to help fuel a recovery.”
Actually the UK does have a reserve currency, as hundreds of billions of dollars worth of pounds are held as reserves by central banks around the world. It also is not clear that this helps the recovery. Insofar as the dollar or pound falls it helps to boost net exports, stimulating growth and generating jobs.
The piece also contains the bizarre statement:
“Those in the stimulus camp who liked to point to “a natural experiment” playing out between Britain and Japan, where stimulus measures introduced by Prime Minister Shinzo Abe produced a burst of economic activity earlier this year, have gone quiet. Abenomics, as Mr. Abe’s approach was soon dubbed, has not proved to be the panacea some had hoped.”
Since every economist knows that quarterly data is erratic it is questionable whether any have “gone quiet” over the recent economic data. It would have been helpful if the piece could have identified an economist whose opinion of the relative merits of austerity and stimulus was changed by the third quarter data.