Yesterday I put up a chart showing that average GDP growth under Donald Trump was 4.1% while Joe Biden's has been more than double that at 8.3%. How come no one ever shows this comparison?
The answer is simple: it's not adjusted for inflation. Here are the real numbers:
I had two points to make. First, always adjust for inflation!
Second, journalists routinely print whatever figures they're handed. In the case of GDP, the Commerce Department always reports real GDP growth, so that's what they show us. In the case of, say, wage growth or the S&P 500, the headline numbers are nominal so that's what they show us.
There's no good reason for this. A journalist friend of mine asked me the other day why I thought reporters were reluctant to routinely adjust for inflation. My guess: because it means adjusting the "official" numbers and that suggests the reporter is manipulating things instead of reporting them straight. Maybe. In truth, I don't know. Maybe they don't know how? That seems unlikely since it's pretty easy: just divide your series of numbers by the inflation index and then multiply by the current index.
There's no need to overthink this. Always adjust for inflation. Use CPI unless it's a long series, in which case use PCE and make a note of it. That's it. Easy peasy.
Maybe they don't know how? That seems unlikely since it's pretty easy: just divide your series of numbers by the inflation index and then multiply by the current index.
I have multiple acquaintances who went to journalism school because there was no math requirement.
Yup. It's math, and for some people *any* math beyond one step of the simplest operations is too much.
I woulld only observe that outside of financial journalism circles which evidently attracts a different profile in part in all my years, I have never met a Journo who was not either openly "maths avoidant" or ready to volunteer "I'm not a maths person."
While it verges on stereotype, I think it is one stereotype that has a genuine basis - that journalism rather tends to attract the math-avoidant and so people not comfortable with numbers (i.e. functionally innumerate). Which is understandable at a level...
Adding that as Drum's own writing shows, it is quite equally easy for someone who hasn't a background in econometrics to make dubious and even harmfully over application of an otherwise useful habit (that is showing deflated time series [what proper deflator, at last one should try to show one has referenced])
Illustratively, deflating very short time series is not typically done, illustratively as the reality of nominal cost and nominal salary is such in short-term that inflation is experienced as a real cost escalation.
If Drum would restrain himself, show a bit of humbleness that he's not an econometrician, and principally use deflated numbers on longer time series (say rule of thumb 5 yr+) and in respect to coherent price sets he'd do his own usage and his otherwise more valid points a benefit.
Give me a break
WHY not adjust GDP per capita?
OR per working age person?
When talking about the Dow, it isn't adjusted for Dividends. Should it be?
What about different areas that buy different baskets of goods?
It is too damn complicated.
So Kevin decides to play God and adjust thing for inflation that don't make any sense.
Look at the cost of electricity 100 years ago and adjust it for inflation. Is that the right divisor? I don't know. Maybe a kilowatt hour should be based on the average wage?
With stock prices, you want to compare today's price with yesterday's price.
How can you deal with LEAPS or options if you are going to adjust for inflation?
How do you know what inflation was last month or last week?
The GDP numbers get adjusted for all sorts of reasons. We live with it.
Do you want to adjust the prices of stocks and then go back and force option trading to adjust?
Stay in your lane.
You don't understand the differences in different areas enough to know when it makes sense to adjust for inflation and when it doesn't.
Rather agree - naively and willy-nilly deflating with some available deflator is not showing wisdom, it's like a student in Econ 101 who just learned a new hypothesis and commences to apply it everywhere.
There's quite an econometric literature about the trade offs on choices in deflators and the like and Drum just naively grabbing CPI (or whatever happens to be his ad-hoc judgment) without very evidently having an understanding of this or even likely an awareness is not a good thing.
Considering he never admitted how wrong he's been re Inflation and Fed impacts (and more to the point, how right the technocratic econometricians [not the World is Ending of either Right or Left Activists sides re Inflation - Fed Rates binome] were in fact right including Soft landing.
Fact-checking: they're not so rigorous anymore, are they?
Do they depend upon community-sourced fact-checking ?
Journalists don’t adjust for inflation for the same reason nobody else routinely does either: a good 80-90% of the public is innumerate, and a high proportion are also intellectually lazy overall. Why bother to do math when you can just reprint what someone else you trust gave you, and then go out for cocktails early?
As a matter of specifics
(1) the majority of reporters are not trained in economics, and one can safely presume are generally not maths oriented, so innumerate generally,
(2) the majority of their readership is equally innumerate
(3) in fact despite Drum's willy-nilly deflatingof figures - one can indeed make both methodological and logical errors (as has been evident) although Drum will never admit his own lack of econometric understanding. (one can note deflating very short term series, deflating certain kinds of nominal numbers like indices which are not sensible to deflate)
This is not to say that deflated numbers are not often preferable, they are - however there are actual reasons that willy-nilly deflating is not a panacea, notably when the person doing so hasn't any background in the principals (as choice of deflator is a real point of consideration.
As the other commenters have sort of hinted at, but not come right out and said, people who profess ignorance of how to do simple arithmetic operations because "they're not MATH majors" show an even greater ignorance of what "math" consists of and what "math majors" learn.
Hint: it isn't accounting. That's an arcane and specialized area which, sure,uses arithmetic operations, but is heavily dependent upon legal and business needs.
It isn't economics, which, trust me, hardly any Americans have the slightest clue about, but think they do.
Science uses a whole lot more "math" but that's even more geeky and therefore yukky. Even to NPR reporters!! (The cruelest cut of all, in my opinion.)