NYTimes Sees a Number, Decides Sky Has Fallen

The magical thing about a recession is that you can't tell if one is happening or not until months later. This puts the news media in a delicate situation. There's no way to report on the thing that everyone is curious about. Reporting about recessions also seems to be a little bit like the Wizard of Oz, if you close your eyes, click your heals, and repeat "the economy may be slipping into recession," it just might happen.

Take, for example, an article today in the New York Times: Productivity Slowed in the 4th Quarter

I have several problems with this article.

1. Productivity did not slow. Productivity is not a thing that can slow, it is a measure of goods produced per unit labor input, so it can only increase or decrease. Productivity growth, on the other hand, can accelerate or slow down.
2. You look at that headline and your first reaction is to think "The US economy was less productive in the 4th quarter, the economy's really in the crapper!" Wrong. Productivity stilled increased, just at a slower rate than before.

Ok, so fine, maybe the headline is a little to pessimistic for me. Perhaps the article is objectively written in a thoughtful manner. But you're no fool, you can tell that I'm just setting you up with that statement.

In the body of the article you find nothing but doom and gloom. Productivity growth slowed to a mere 1.8% annualized growth rate in the 4th quarter, from a blazing 6% annualized rate in the 3rd quarter. Sounds disastrous, right? 1.8 is not a big number! It's certainly not as big as 6!

How about some perspective then? From Gregory Clark's "A Farewell to Alms," page 200, there's a table of long-term productivity growth rates. For the United States, from 1960-2000, the average growth rate of output per worker-hour was 1.75%.

To quote the article itself:

For the year, productivity rose by 1.6 percent, a slight rebound from a 1 percent gain in 2006 but both years were well below the average annual increases of 3.2 percent turned in from 2000 through 2004.

Because 4 years constitutes a reasonable amount of time to use to set your expectations. Seems more likely that we're just looking at productivity growth reverting to the long-term mean.

The whole tone of the article is ridiculous. It's basically written from the tone of "Batten down the hatches, it's going to get rough out here!" when all the data in the article says "We're not in a boom, but we may not be in a recession either." The article admits that productivity growth was twice what economists expected and that the cost of labor was lower than expectations, but then quotes an analysts that says everything is going to hell.

So my point is the New York Times has taken something that really means nothing or could mean anything, and decided to interpret it in the gloomiest possible fashion. What's worse, it's not even an individual reporter that we can blame. Apparently this is just a story from the Associated Press. Every news outlet is going to pick this up and people everywhere are going to clamor for an "economic stimulus" (which is synonymous with "increased deficit spending").

So I guess my point is, maybe there's a recession coming, but there's no way to really tell. Also, for most people, a recession is an entirely abstract thing that you can blame unfortunate economic events on. When you're using a home equity loan to finance your consumption, you have to know it's going to catch up with you eventually. When the entire nation is gripped by this mania, why are we surprised that the economy is slow for a bit? I guess that I just wish the news media had enough economic sense to parse the news a little better by themselves, rather than just weighting their stories to whichever camp has more analysts. Or, failing that, be a little more objective about things.