YOU DECIDE: Are we better off today?

Date posted: September 14, 2012

Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.Dr. Michael Walden is William Neal Reynolds professor of agricultural and resource economics at N.C. State University.

Media Contact: Dr. Mike Walden, 919.515.4671 or michael_walden@ncsu.edu

By Dr. Mike Walden
North Carolina Cooperative Extension

I’m taking a big risk with today’s column. The question, “Are you better-off today?” has become a major debating point in the current political campaigns. The parties, candidates and their supporters have strong opinions about the answer. So just addressing this question is certain to stir some deeply held feelings and possible backlash against yours truly!

But the question is usually framed around economics, and so, as a professional economist, I should be able to address it. And so I will, by as I always strive to do, presenting facts and analysis without a political agenda, with the objective of letting you decide on the answer.

Of course, to answer the question, there must be both a start point and end point. For most, the end point is easy — now. Also, the question is usually presented to suggest the start point should be the beginning of the current presidential term, which is January 2009.

Yet presidential terms and economic cycles rarely coincide. By economic cycle, I mean the irregular ups and downs in the broad (macro) economy. Both in our country as well as in other countries, economists have noticed economies go through a repeated pattern. They grow and improve for a while – we term this phase an expansion – and then they decline and retreat for a period – we call these recessions.

Each cycle is one expansion and its accompanying recession. There have been 12 of these economic cycles since World War II. Fortunately, the ups (expansions) tend to exceed the downs (recessions), so on average, we tend to make economic progress over time.

The dating of economic cycles is actually done by a private economics think-tank. They tell us the economy expanded from 2001 to 2007, but then fell into a recession in late 2007. The recession hit a bottom in June 2009, and since then the economy has been growing, meaning we’ve been in a new expansion for over three years.

Therefore, in answering the are we better-off question, which start date should be used? Should it be late 2007, just as the last expansion ended and the recent recession began? Or should it be June 2009, when the think-tank says the current expansion began? Whichever is chosen, the start date doesn’t line up exactly with the beginning of the presidential term.

I can complicate matters even more! All economic measures don’t exactly ebb and flow with the overall economic cycle. Importantly, the job market often doesn’t. Usually the job market lags other factors, like business production and spending, as employers take time to decide whether the economy has really changed direction.

Indeed, whereas the broad economy began receding in late 2007, jobs continued to be added until early 2008. Also, while the recent recession bottomed out in mid 2009, jobs didn’t begin increasing until the beginning of 2010.

So can economists say anything useful that will help you decide the better-off question? I think we can. First, aggregate production from both manufacturers and service firms has fully recovered and now exceeds pre-recessionary highs. Business profits are also back. This is a big reason why the stock market is almost where it was before the big drop of 2008-2009.

U.S. competitiveness in world trade also appears to have registered a major gain, with exports growing faster than imports and the trade deficit shrinking in recent years.

Households have also worked hard to reduce debt, increase savings and re-balance their personal finances. Household net worth is still lower than in 2007, but it has increased in the last three years.

A big reason for the sluggish rebound in household wealth is the housing market. Homeowners suffered the largest loss of equity in history when housing prices began to fall in 2006. Only recently have prices in most localities begun to stabilize and then rise, but foreclosures and “underwater” mortgages are still issues. Every economist I know agrees that a full economic recovery won’t occur without a housing recovery.

Then there’s the job market, which for most, is their major gauge of the economy. Between the recent peak of the job market in early 2008 and the bottom in early 2010, almost 9 million jobs were lost nationally. Since then, a little less than half — over 4 million jobs — have been regained. Of course, not all the same jobs have come back, and there’s continuing concern with both long-term unemployment and the large numbers of workers who have simply dropped out of the labor force.

So these are the facts, and they do paint a mixed picture. In general, the economy has improved in the last two years, but whether we’re back to where we were prior to the recession depends on which indicator is examined. In answering the better-off question, know what is being measured, the time period being covered and why. This will lead to a better you decide.

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Dr. Mike Walden is a William Neal Reynolds Professor and North Carolina Cooperative Extension economist in the Department of Agricultural and Resource Economics of N.C. State University’s College of Agriculture and Life Sciences. He teaches and writes on personal finance, economic outlook and public policy. The College of Agriculture and Life Sciences communications unit provides his You Decide column every two weeks. Previous columns are available at http://www.cals.ncsu.edu/agcomm/news-center/tag/you-decide

Related audio files are at http://www.cals.ncsu.edu/agcomm/news-center/category/economic-perspective/

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