Wednesday, August 20, 2008

Actually ,McCain Was Out of Touch


The New York Times in its typical "pox on both houses" fashion criticizes Obama's new ad depicting McCain as out of touch on the economy. One argument they make is that the ad used old quotes from months ago (January and April of 2008) and that it was only since then that weakness in the economy became evident.

They also claim that the ad doesn't show McCain's more nuanced take on the economy and that he was taken out of context (in a political ad...shocking!). I'll take on the first point for now. For observers of the economy --who were paying attention-- the weakness in the economy has been evident since last Fall. Recall, that the Fed started cutting interest rates in August 2007 and that we now know that the GDP fell in the 4th quarter of 2007 --before McCain's quotes in January and April of this year.

Anyway here are some charts (click on them to make them bigger) showing the timing of McCain's quotes relative to four economic indicators: change in private employment, real average hourly earnings growth, real consumption growth and initial claims for unemployment insurance. I think these charts speak for themselves.

UPDATE: In the comments Jonah makes the great point that the calls for a fiscal stimulus package preceded McCain's quotes and really destroys the NYT's argument that the economy soured later. For example, see this account from OMB Watch written on 1/23/08:

Amid slumping capital markets and real estate values, a jump in unemployment, and a growing chorus of economists forecasting a recession in the U.S., a consensus has rapidly developed in Washington during the first few weeks of the year that a fiscal stimulus package is in order. The watchword in Washington has been "bipartisanship," and President Bush and the congressional Democratic leadership have already made concessions. Some questions remain regarding the optimal structure and size of the package, but indications point to its enactment in a matter of weeks.

Discussion of a fiscal response to the economic slowdown began in earnest when former Treasury Secretary Lawrence Summers wrote in a Financial Times op-ed in November 2007, "Three months ago it was reasonable to expect that the sub-prime credit crisis would be a financially significant event but not one that would threaten the overall pattern of economic growth. This is still a possible outcome but no longer the preponderant probability … the odds now favor a US recession."

Summers' pessimism — or prescience — was confirmed on Jan. 4 when December 2007 employment figures showed a jump in the jobless rate from 4.7 to 5 percent and net private sector job losses. On Jan. 6, Summers wrote a follow-up op-ed, "Why America must have a fiscal stimulus": "Six weeks ago my judgment in this newspaper that recession was likely seemed extreme; it is now conventional opinion and many fear that there will be a serious recession ….

1 comment:

Jonah B. Gelbach said...


nice post. i've seen the same stuff about how those comments were supposedly before anyone was worried.

another way to point out how out of touch this stuff is is to note the timing of when congress and the WH started talking about fiscal stimulus.....i forget the date, but it was certainly before april 2008!