Before I get rolling on this story, you should know that I am so far removed from being a mathematician that the most important thing (aside from blogging) personal computers have done for me is balance my checkbook.
Until I got my first financial software (whenever that was), it was questionable whether the amount of money I thought I had in my checking account had anything to do with reality. Fortunately, to forestall overdrafts, I’ve always been good at estimating in general how much I’ve got and how much I’m spending.
To further convince you of my mathematical deficiencies, I'm pretty sure that most if not every time I've calculated percentages for a TGB story, a reader has corrected me. None of this keeps me from being amazed at the idiocy of economists that even I can recognize.
ECONOMIC ITEM NO. 1
You would expect economists to understand simple math at least as well as I do, so I was stupefied when an Australian friend, Peter Tibbles who has contributed some excellent stories to The Elder Storytelling Place, emailed about a looming merger between Qantas and British Airways. According to Peter, national laws of both Australia and Great Britain require that 51 percent of each company’s ownership be held by nationals of their country.
Economists have blessed this potential merger so I assume, to facilitate it, they will figure out how 102 percent equals 100 percent while preserving each company's required ownership majority. (Do check my figures on that.) Peter noted in a followup:
"More on economics and maths: a local economist said that if BA had 49 percent of Qantas they would have effective control of the company. Apparently if Qantas has 49 percent of BA it doesn't give them effective control. 'Run that by me again,' I said to my TV. There was no response."
ECONOMIC ITEM NO. 2
What has taken up way too much room in my brain as I've followed the economic crisis over the past months is that every economist I've read (and financial reporter) (and Wall Street master of the universe) (and designated media expert) has expressed surprise that the housing bubble burst. “Didn’t see it coming,” they say. Do each and every one of them suffer from short-term memory loss?
Prices of everything go up and prices of everything go down - back and forth in perpetuity. I'm no more a historian than a mathematician, but even I've always known that, and until recently I hardly ever read the business section of the paper.
When it became evident, in 2005, that to survive, I would need to sell my Greenwich Village apartment and move to a less expensive place, I was already worried that I had missed the peak of the housing bubble. I could see from my research to determine an asking price that even in the No. 1 most desirable (and expensive) neighborhood in New York City, prices were softening and an increasing number of people were cashing out.
It took nearly ten months to sell as I watched the market softening further while I waited for a purchaser. I got a good price, but not as high as it could have been a year earlier. Even a housing and economics naif like me could see the slump coming way back then and I hadn’t even heard of all those toxic mortgages yet.
How did I know? It wasn't hard. It took me about half a day of online research to find out that, occasional spikes notwithstanding, housing prices had been slowly creeping south for a couple of years - not by much, but evident; there were more for-sale and for-rent signs in my neighborhood than during the preceding decade; more empty store fronts; and I rejected several frighteningly low offers.
So here's the question: why did I, a non-professional with no more than a high school diploma, know a crash was in the offing and the experts with all those letters after their names say they were surprised?
ECONOMIC ITEM NO. 3
For a year or more, the U.S. government and their journalist mouthpieces repeatedly reported that the economy had not met the requirements to be officially declared a recession. The arcane formula generally defines a recession as TWO QUARTERS of decline in the GDP (gross domestic product).
Last week, economists at the NBER (National Bureau of Economic Research), who track these things, announced that we have been in a recession FOR A YEAR.
If I'm not mistaken, a year equals FOUR QUARTERS (again, do check my figures) and if that is true, why wasn't it announced that we were in a recession six months ago? Not one journalist in my extensive online reading has questioned this discrepancy. It produces the kind of cognitive dissonance that makes my brain rattle around in its casing.
More importantly, it leaves me wondering what number of financial decisions bankers, Wall Streeters, CEOs, government agencies, small businesses, not to mention individuals like you and me did not make or made poorly because the government did not announce the recession when it officially occurred.
Might I (and you) have moved my pitiful nest egg out of some of its investments that later failed enough to shrink it by 30 percent? Maybe, maybe not. But I certainly would have been paying closer attention and might have prevented some of the loss.
As Paul Newman famously said in Cool Hand Luke:
“What we’ve got here is a failure to communicate.”
And this time the consequences have been more dire than the outcome of a movie plot: some portion of trillions of dollars lost because the government failed to communicate. Newman, as Luke, was himself quoting actor Strother Martin who, earlier in the film, elaborates on the statement. If you are as cynical as I am, you will be interested in Martin’s full speech:
“What we've got here is failure to communicate. Some men you just can't reach, so you get what we had here last week which is the way he wants it. Well, he gets it. And I don't like it any more than you men. [emphasis added]
Hindsight is 20/20 and hypotheticals can’t be proved, but I wonder, I wonder if the losses – corporate and individual - might have been less drastic if government economists had communicated the recession earlier.
[At The Elder Storytelling Place today, Susan Gulliford explains how difficult it can be to do A Simple Bathroom Update.]