What starting point?
Date posted: October 9, 2012
There’s a big debate going on about whether we’re better off now, economically speaking. Of course, such comparisons must have both a starting point and an ending point. For most, the ending point is now. But what is the appropriate starting point? N.C. State University economist Mike Walden responds.
“Well, right now, we could have three different starting points. A lot of people are obviously focusing on the starting point, coincidental with the beginning of the current presidential term, which was January 2009. So people are asking, Are you better off today than you were in January of 2009?
“But there are a couple of alternatives. One is June of 2009. Now why do I pick June of 2009? That’s the date at which most economists say the recession bottomed out and the economy has begun to improve. Now it’s not totally back, by any stretch of the imagination, but we have seen on most indicators economic progress since June of 2009. So, a lot of people say, ‘Hey, the economic cycle doesn’t correspond with the political cycle, so you should use June of 2009 as the starting point.’
“There’s a third possibility and that is to go back to when the recession began — that is, the end of the last growth period in the economy — which would be December of 2007. And so many economists and others say that should be the appropriate starting point – ask, ‘Are we better off today than we were at the end of the last expansion point, December of 2007.’
“Now why all this is important as you do reach different conclusions based on which starting point you use. If you use June of 2009, the answer is most indicators are better off. If you use December of 2007 you would see that about half and half. About half of the indicators are and half aren’t. If you use January of 2009, you also get a mix.
“So, this is very, very important not just to vaguely ask, ‘Are you better off?’ But you always have to say, ‘Better off compared to when?’”
Category: Economic Perspective