Quoth Andrew Gelman and John Sides on 538.com:
For example, in mid-September, John McCain notoriously said, “The fundamentals of our economy are still strong.” But then in early March, he said that the American people “want to know how we got into this ditch—the worst economic crisis since the great Depression.” Based on these two statements, the slide into the ditch apparently occurred sometime between September 16 and March 3.
The core point of their article — that partisan blinders skew our perceptions of the economy — is well taken and I’m inclined to agree with it. But I think this is a poor example. In hindsight, we can see the roots of the present recession going back years (and in some cases, decades), and we can see that when McCain spoke in September the recession was inevitable. But without the benefit of hindsight, what McCain said was a perfectly reasonable contention at the time.
Stock market prices reflect the consensus estimate of investors about the risk-adjusted net present value of future realizable earnings of publicly-traded corporations, making them a decent proxy for reasonable expectations of how the economy is going to do in the medium-to-long term (barring major changes in public policy, such as raising or lowering taxes on investment income). This is what the three major US stock market indexes did of the past year:
See that big drop right around the beginning of October, when all three indices dropped by a third? That’s when Hank Paulson and Ben Bernanke told us the sky was falling, that the subprime crunch was not something that would confine itself to the financial sector and sort itself out in a few months, as many had hoped. This announcement had two effects: it made public a significant amount of aggregated information about the state of the financial sector; and it served as a self-fulfilling prophecy by raising everyone’s expectations of risk, further depressing the price of the troubled assets, and making it still harder for financial institutions to raise the money they needed to stay afloat.
So yes, something did happen between September and March to change McCain’s mind about the fundamental strength of the economy, and it wasn’t necessarily the change in partisan control of the White House.
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To me “fundamentally strong” means that it is not in danger of collapse, so I think McCain was correct in September and that it would still be correct today to say that the economy is fundamentally strong. But I suppose that is semantics.
Saying that the fundamentals of the economy are sound was not just reasonable to say last September. It’s reasonable to say right now. Indeed, President Obama has been forced to shift gears a couple of times and start being upbeat and basically saying the same thing: the fundamentals are sound.
Because they are. The American worker is no more lazy than workers anywhere. We have a highly educated workforce, are still the global financial powerhouse, etc. Yes, our manufacturing sector has been shrinking for decades but it’s a little crazy I think to suggest that an economy based on manufactured goods is the only sound economy. Indeed, as more and more robots come on line (it’s really remarkable how little people notice this undeniable trend), it would be foolish to try to base the economy on manufacturing–since the only real jobs would be maintaining the machines that made the actual stuff.
The economy is in bad shape because a lot of people were not ready for it. But I suspect it’ll be a damned long time before we’re looking at bread lines and soup kitchens for most people.
McCain was right when he said it. He’s still right. President Obama was right when he said it too.
In hindsight, yes, McCain was wrong in September. But a lot of other people were also wrong about the same thing at the same time, and there were reasonable ground for being mistaken.
My point was that the difference between McCain’s opinion in September and his opinion in March is a reasonable response to having been unambigously proven wrong by events, not a knee-jerk partisan response as the linked article concludes.
If I remember the context of McCain’s statement correctly, he was arguing against predictions that a deep recession was imminent or in progress. If that’s what he meant, he was very much wrong.
As for Dean’s read of the statement, that the economy was capable of righting itself and recovering from the fallout of the subprime crunch into robust growth in the coming decades, I agree that that was true in September and it’s still true today.
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