December 30, 2015
The Washington Post gained notoriety in the last decade by relying on David Lereah as its main source the housing market. Lereah was the chief economist for the National Association of Realtors and author of Why the Real Estate Boom Will Not Bust and How You Can Profit from It. It continues to follow the pattern of relying on a narrow group of economists, most of whom seem to specialize in repeating what the others are saying.
It devoted a major news article to explaining why “$2 gasoline isn’t having the economic impact everyone thought it would.” According to the piece, the main problem is that people have increased their savings:
“Kathy A. Jones, Schwab’s chief strategist on credit markets, said that consumers have increased their savings as oil prices have dropped. And as the savings rate has gradually edged higher, Jones said, the use of credit cards has declined. According to the Bureau of Economic Analysis, the personal savings rate climbed to 5.6 and 5.5 percent respectively in October and November, the highest rates in three years.”
Actually, the saving rate is poorly measured since it depends on a measure of income that is subject to large revisions. If we take spending as a share of GDP, we find that it was 68.33 percent in the first three quarters of 2015, down trivially from its 68.4 percent measure in 2014 and almost identical to the 68.37 percent share in 2013. In other words, the data (as opposed to the economists) say people are spending pretty much what we should expect them to spend. If we want to find the sources of weak growth, we should look elsewhere.
While the piece correctly identifies equipment investment as one of the other sources of weakness, remarkably it ignores the trade deficit. Measured in 2009 dollars, the trade deficit rose from $442.5 billion in 2014 to $546.1 billion in the first three quarters of 2015. Assuming a multiplier on net exports of 1.5 this rise in the trade deficit would be sufficient to knock roughly a percentage point off GDP growth in 2015.
It is remarkable that the Post would not include this sharp rise in the trade deficit in a discussion of the economy’s weak growth in 2015. In this context, it is probably worth noting that the Post is a strong proponent of the Trans-Pacific Partnership (TPP). Supporters of the TPP tend to ignore the trade deficit and its impact on growth and jobs.
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