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When the Story Does Not Fit the Facts

February 23, 2009, 10:37 am

Cooler heads are looking at the world economic data, and starting to come to the conclusion, voiced by yours truly a number of times, that the US financial crisis was/is a symptom of a world economic slowdown, not the other way around

Compare the decline in real GDP over the past 4 quarters (from The Economist):

U.S.

-0.2%

France

-1.0

Germany

-1.6

Britain

-1.8

Italy

-2.6

Japan

-4.6

Does it make sense to blame the largest declines in GDP on one country with the smallest decline?  If so, then we need some explanation of how some uniquely American "illness has spread" to so many innocent victims.

If the explanation is supposed to be falling U.S. imports, then the worst decline by far would have been in Canada and Mexico (where real GDP was rising even in the third quarter).  If the alleged causality is supposed to be because of some undefined links between financial centers, then Italy would not be among the hardest hit.

When it comes to trade, in fact, the shoe is mainly on the other foot: Collapsing foreign economies crushed U.S. exports.

In the second quarter of 2008, U.S. exports accounted for 1.54 percentage points of the 2.83% annualized rise in real GDP.  But falling exports subtracted 2.84 percentage points from fourth quarter GDP.  Falling exports, not falling consumption, were the biggest single contributor to the overall drop of 3.8%.

After looking at which economies fell first and fastest, it might be more accurate to say that some foreign  illness has spread to the U.S. economy than to assert or assume the causality ran only in the opposite direction.

Tags: ,
Category: Economics

4 Comments

  1. They Want More:

    Talk about not fitting the facts, look at this:

    http://www.nybooks.com/articles/22390

    February 23, 2009, 11:49 am

  2. Lorenzo (from downunder):

    Spike in oil prices hits vulnerable economies starting global slowdown which helps trigger financial crisis already underway in part from collapse in regional US housing bubbles? (Or, more precisely, the collapse in the demand for houses as inflation-beating assets, which had been created by officials restricting land use in the "Zoned Zone" driving up prices by blocking quantity response to demand, since people can and do move from the "Zoned Zone" to "Flatland", undermining the demand for houses-as-houses in the "Zoned Zone".)

    February 23, 2009, 2:55 pm

  3. Michael Miller:

    "Falling exports, not falling consumption, were the biggest single contributor to the overall drop of 3.8%."

    No one in Washington knew this? I can't believe that.

    And they rammed that stimulus package through Congress in record time. Now we know why they were in such a hurry. They had to get it done before the public had all the facts. A great victory for the new president? Hogwash. It was a flimflam.

    February 24, 2009, 2:12 am

  4. The other coyote:

    Hey coyote ~

    I really like your charts, graphs, etc. I'm not particularly computer literate (but I can type 75 wpm - thank you, Mrs. Shelton!) so I don't know how to create them.

    I also completely agree with your assessment that the "sky is falling" rhetoric has become a self-fulfilling prophesy.

    Would you consider creating one of your cool charts with the Dow on one axis, and dates where Bush/Paulson and Obama (or a minion, like Geithner or Chu) opened their pie holes on the other?

    For fun, you could throw in votes in the House and Senate and final passage of the "stimulus" bill on the Obama axis.

    I can't remember major tumbles after Pelosi, Reid, Waxman or their ilk said something stupid, but since it's an every day occurance, that may be just white noise at this point.

    The other coyote

    February 24, 2009, 10:08 am