Economist, Analyze Thyself

Nothing scares an ivory-tower liberal like facing the reality of a failing economy. Today's example: UC Berkeley's Brad DeLong, a gifted and insightful "reality-based" econoblogger who took quite a leap -- off a cliff -- the other day in trying to criticize the NYT's Bob Herbert.

Herbert wrote a typically understated column (and if you don't read him regularly, you should; he and Paul Krugman are usually the only voices of sanity on the Times editorial page) arguing that the economy is in severe trouble, and that Washington's statisticians and Fed functionaries are in abject denial about it. This is self-evidently true to anyone who's been to the Midwest lately (or really, anywhere other than Cambridge, Manhattan/Westchester, northwest D.C., and coastal California); but it prompted DeLong to call (quite literally) for Herbert's forcible retirement.

Specifically Herbert wrote this:

Bankruptcies and homelessness are on the rise. The job market has been weak for years. The auto industry is in trouble. The cost of food, gasoline and home heating oil are soaring at a time when millions of Americans are managing to make it from one month to another solely by the grace of their credit cards. The country has been in denial for years about the economic reality facing American families. That grim reality has been masked by the flimflammery of official statistics (job growth good, inflation low) and the muscular magic of the American way of debt: mortgages on top of mortgages, pyramiding student loans and an opiatelike addiction to credit cards at rates that used to get people locked up for loan-sharking...

All of which is true. DeLong, however, wants to argue that "this is at most one-quarter true", and goes on to rebut exactly one of Herbert's points (on weakness of the job market, which is endlessly debatable) as well as a couple things Herbert never said (DeLong is right, real disposable income is not falling, though it's not exactly growing like gangbusters either -- and yes, inflation has been low, but Herbert's not talking about 2002). DeLong never discusses bankruptcies, homelessness, the auto industry, cost of food & fuel, the debt crisis, falsification of statistics, or any of the other inconvenient truths Herbert raised; instead, he adds a pedantic note about defining the word "recession" (missing Herbert's point entirely), smugly points out that Herbert confused CPI with core inflation (a mistake two degrees from a typo), and calls it a rebuttal. Convincing it's not.

As for the statistical reality of the situation, DeLong's commenters do a much better job of discussing the details than I could, so I'll just refer you there. Except for this one graph (from the Economic Policy Institute), which basically sums up the problem:

So if you're in the top quintile -- which means, as of 2004, that your family earns over $88,000 a year -- things are peachy keen. But everybody else has been seeing their income slide; and the poorer you are, the faster you're sliding (and thus more likely to get buried under mountains of debt just to keep your house, car and fridge). Households in the bottom quintile, which earn under $18,500, are on a steady and steep path downwards. (To underscore the gravity of that: 41% of the bottom quintile households are families with children. The poverty line as of 2006 for a family of three is $17,170, which is just below the maximum for that quintile. So yes: the fastest-declining group in our society is families in poverty.)

This divide is a serious problem, because the vast majority of our policymakers and opinionmakers fall into that top quintile; somehow I doubt there are very many members of the Fed who make less than $88,000/yr. And (more importantly), these elites inevitably surround themselves with more of the same; people like Brad DeLong in Berkeley or Ben Bernanke in Washington, D.C. are highly unlikely to ever see economic instability firsthand. To compound the problem, the purported empirical reality-check for these segregated elites -- statistics -- are unfailingly skewed by self-interested administrations in order to minimize or hide whatever problems may arise (and sorry folks, Clinton was just as shameless about this as his Republican counterparts). The result: nothing exists to force our policymakers out of their economic bubbles, and meanwhile working Americans suffer in silence.

(Don't get too cocky, Harvard students: this place is an egregious example of precisely the myopia we're talking about. Did you know that, as of 2004, over 85% of our student body came from the top two income quintiles? Summers' financial aid reforms helped, I'm sure, but it's telling that among the Class of 2011 -- "the most economically diverse to date" -- just a quarter of students were eligible for the financial aid programs given to households under $80,000/yr. Besides, Harvard is incredibly bubbled-in; I realized a while ago, and this blew my mind, that I don't know what the price of gas is anymore because there's not a single gas station in Harvard Square. Nor do we buy our own food; I doubt that many of us could pass the gallon of milk test. And we're the people who are supposed to graduate and lead the nation's economy? God help us.)

Thus, I think, we see the extent to which someone like Brad DeLong will repress his considerable intellect in order to ignore the reality of economic collapse -- since, absent clear and tangible evidence to the contrary, it's MUCH more comfortable to assume that everything is fine and the country is functioning properly. (This is especially likely to happen to economists, since the facts on the ground stand in direct opposition to so many of their discipline's basic principles. The cognitive dissonance must be awful.) But it is absolutely critical to defeat that assumption -- especially for Democrats, not only because of our ideological obligation to economic fairness (we are, after all, the party of the working American), but also because if we fail to recognize this disastrous economic situation before it metastasizes, we will be right there with all the Republicans on the list of its political casualties. And we cannot let the biases that affect Brad DeLong -- and the Harvard Economics Department -- get in our way.