So let's talk about Michael Kinsley. Liberal. Columnist.
In his offering to the Politico this morning (see "Are we poorer than we used to be?"), he suggests that we are all doing just swell under Barack Obama, despite all evidence to the contrary. Kinsley:
Did you feel poor in the third quarter of 2007?Okay. That was the first tip-off that this was going off the rails. What, I asked, does Americans "feeling poor" (think income) have to do with "producing goods and services"? They reside in two totally different - if related - realms of economics.
I ask because after the most severe recession since the Great Depression, and with a slow recovery, the U.S. economy, nevertheless, is back to producing about as many goods and services as it did in the third quarter of 2007.
Then he does the Full Monty:
Adjusting for inflation and using 2005 dollars, our seasonally adjusted gross domestic product was $13.268 trillion in the third quarter of 2007. Three years later, it was $13.277 trillion. If you want to account for population growth, push the time machine back to the fourth quarter of 2006, when Jack Abramoff copped a plea and the real seasonally adjusted GDP was $13.060 trillion.No. GDP isn't a bad reflection of changes in the average citizen's prosperity. But it's pretty darn close to being a bad one. For the very reasons that Kinsley cites. GDP is up (a little). As are unemployment (a bunch) and home foreclosures (ditto). Time for an exclamation mark - ! -.
Life did not seem so terrible for most people back in 2006 or 2007, did it? So why are so many people glum now? Why are so many actually suffering, losing their houses or their jobs? Why are there so many stories like the one on the front page of The Washington Post on Nov. 19 about a woman who used to be a nursing-home executive with a six-figure income and this year will clear $11,000 selling chicken dinners? Changes in GDP are not a perfect reflection of changes in the average citizen’s prosperity at any given time. But it’s not a bad one.
How can this be?
Well, because Michael Kinsley doesn't know the difference between Gross Domestic Product and what's known as Gross Domestic Income. There is a difference. A big difference. Though related, one is not necessarily a reflection of the other. Nor is one the result of the other. (see below for boring definitions).
Want to learn more about this very important distinction?
What all this means is this: The economy can be doing (falteringly) well while per capita income in the U.S. can be falling. As it is.
Kinsley should have known this before he killed electrons trying to convince us that everything here in the USA under The Chosen One is harmony and roses.
* GDP is calculated as the sum of what consumers, businesses, and government spend on final goods and services, plus investment and net foreign trade. (source) Gross Domestic Income (GDI) is comprised of national income plus "capital consumption." (source)
** For more explanation go to this from the Federal Reserve Board: "Estimating Probabilities of Recession in Real Time Using GDP and GDI," by Jeremy J. Nalewaik.
** And this: "GDI vs. GDP - Which One's a Better Recession Indicator?"