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?