What Number Were You Looking For?

This is one of my favorite jokes. I think I’ve told it here before but it deserves repeating.

A mathematician, a lawyer, and an accountant were the final three candidates for the job of CEO of a large company. The board of directors interviewed each candidate in turn and asked each a single question: “How much is 2 plus 2?”

The mathematician responded immediately. He said “2 plus 2 is 4; it always has been 4 and it always will be 4”. The directors thanked him for his time and told him they’d be in touch with him when they’d made their decision.

The lawyer responded “2 plus 2 could be 4. Or, if one of the 2s was a negative 2 it could be zero. Or, if both of the 2s were negative 2 it could be -4. Or if the 2s were side by side it could be 22. I think that exhausts the possibilities.” The directors thanked him for his time and told him they’d be in touch with him when they’d made their decision.

The accountant started scribbling furiously. Several hours later he’d filled several yellow pads with notes. After a while he looked up over his eyeglasses and said “What number were you looking for?”

I think that joke is funny but it’s also revealing. As we’ve learned from the Enron, a bit of creative accounting (and some colusion from your auditor) can make any company look profitable. Take the financial statements with a grain of salt. Look at other evidence.

And, importantly, and this is the real point of the joke, although the question remained the same the viewpoint of the respondents were critical to their answers.

Last September the NBER, the scorekeeper in such matters, announced that the Great Recession began in December of 2007 and ended in June of 2009, now a year and a half ago. Despite the best efforts of the Federal Reserve and the federal government it certainly doesn’t feel much like a recovery.

An article over at Minyanville by Jim Quinn may help explain why that is so. Mr. Quinn’s answer is that it doesn’t feel like a recovery because there is no recovery.

Harvesting data from the Bureau of Labor Statistics, the Bureau of Economic Analysis, and the invaluable Shadow Government Statistics, Quinn notes the following:

  • The labor force in 2010 is 7.1 million smaller than it was in 2007 and it has grown smaller in each successive year.
  • The unemployment rate has been stuck around 9.8% since the first quarter of 2009. That’s U3, the official unemployment rate. The broader U6 is around 17% while the more intuitive SGS alternative is around 23%.
  • The U. S. GDP in 2008 of $14.5 trillion has only grown to $14.8 in the last two years due to federal government borrowing.
  • Private investment is $216 billion lower today than it was in the third quarter of 2008.
  • Exports are $80 billion lower today than they were in the third quarter of 2008.
  • Although personal income has increased over the last two years private industry wages have declined over that period. The increase is entirely due to increases in government wages and transfer payments.
  • Consumer credit has declined from $13.9 trillion in the first quarter of 2008 to $13.4 trillion today. Over that period banks have written off $600 billion since the first quarter of 2008. Consequently, no deleveraging has taken place.
  • Retail sales stood at $4.5 trillion in 2007 and are roughly $4.4 trillion. Those are not adjusted dollars. In real dollars there’s been an even sharper decline in retail sales

I’ll add to that a couple of other lugubrious statistics. Housing prices are down about 30% from their peak in 2007 and have been flat since 2009. And, while oil prices aren’t as high as they were in 2008 they’re now at the highest point they’ve been since the 2008 peak.

As I’ve said before as long as oil prices are rising, housing prices are flat or falling, and unemployment doesn’t come down, I see no way that a recovery can be sustained.

As to the recovery that is being reported to us, what number were you looking for?

5 comments… add one
  • PD Shaw

    Too cynical. Just today, the high-speed rail project btw/ Chicago & St. Louis has been announced. It will now take only two minutes longer to take the train to St. Louis than drive. Think of all the economic activity that is going to generate!!!

  • PD Shaw,

    There is some controversy here in Ohio that the new GoP governor has essentially scrapped a proposed rail project from Columbus to Cleveland. I drive that route pretty frequently and I’m personally skeptical that a rail project would ever be worth it. I don’t see how they could offer prices that would be competitive with driving and they would not have a lot of daily commuters either.

  • Icepick

    I’m disappointed with the joke. The mathematician should have answered (correctly), “Zero, one or four, for respectively Modulo 2 or 4, Modulo 3, and Modulo 5 or larger. Also four for natural, whole, rational and real numbers. Assuming normal addition, of course.”

    It does remind me a bit of something another grad student liked to say: “One plus one equals two, even for arbitrarily large values of one.”

  • Icepick

    I wrote something about local shopping conditions the other day. I had some stuff about employment in there. Thank god for copy & paste:

    [T]he local employment situation got worse in November. [Edit for Schuler’s comment section: The U-3 unemployment rate in the Orlando Metro area was 11.9% in November, up from 11.3% the previous month. The Tampa area’s is now at 12.6%.] But let’s look at the broader picture of the whole state of Florida. From an article in the Orlando Sentinel last Thursday:

    The statewide figure [of 12.0% U-3 unemployment] represents about 1.1 million jobless in a labor force of about 9.2 million. Total non-agricultural employment grew by 300 jobs from the previous month.

    Three hundred jobs! Let’s say we want the unemployment rate in Florida to get down to 5%, which is actually higher than it was pre-recession. That means that 640,000 currently unemployed Floridians (on net) need to find a job. At 300 jobs a month it will take approximately 2,133 months for the U-3 rate to return to normal. (That’s over 177 years.)

    Now you can accuse me of looking at the worst case. You would be wrong (we could easily lose jobs), but I can find a better case from the same article.

    Since last year at this time, Florida has added 36,200 jobs – an annual growth rate of 0.5 percent. The national growth rate over that time has been 0.6 percent.

    Okay, so the monthly average job gain of the last year has actually been a little over 3,000. So that means that it would take only about 213 months, or over 17.5 years, for the employment numbers to improve. And none of that takes increases in population into account.

    And it’s not just Florida. Consider California – the Golden State is turning into the Lead State. The most recent monthly unemployment report shows that unemployment in California is now as bad as Michigan. Michigan!

    Then there was this sad story about letters to Santa Claus – increasingly children are asking for warm coats for their parents and money for the electricity bill. It’s really sad, so I don’t recommend the story for everyone. But here’s the paragraph I found most telling.

    Though many considered last year to be the toughest financially since the economic downturn began, Fontana said, it appears that more people are struggling this year, judging both from the letters and the decreased number of volunteers who sign up to fulfill some of the writers’ wishes.[emphasis added]

    I ask you again, does this look like a recovery?

  • Icepick

    Oh, I forgot to link to the post. It’s about Christmas shopping, or the lack thereof, in West Orlando.

    http://theoreticalblingbling.blogspot.com/2010/12/does-this-look-like-economic-recovery.html

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