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Surprise! The Great Recession was as bad as you thought it was--and worse than government data showed
09/07/2011 4:00 pm EST
What if President Obama, Congress and the Federal Reserve had had an accurate picture of how bad the economy was in 2008 and 2009? Would they have put together a bigger, better, or at least different attack on the Great Recession?
What if current economic numbers are as wildly inaccurate as they were in 2008 and 2009? Would that change the current debate?
All economic data are subject to revision with time but the changes to the picture of the economy as the United States slid into recession have turned out to be shockingly huge. The original numbers reported by the Bureau of Economic Analysis in January 2009 showed the U.S. economy contracting by 3.9%. That read, scary enough, was the basis for the stimulus package passed by Congress in February 2009.
Turns out that number wasn’t nearly scary enough. The first revision with more complete reporting showed the economy actually shrinking by 6.8%. The newest revision, published at the end of July, shows the economy contracting by a breathtaking 8.9%.
Think maybe the folks in Washington would have designed a different response if they knew the economy had dropped by 8.9% rather than by 3.9%? For all of 2009 the economy contracted by 3.5%, the newest data say, rather than by the previously reported 2.6%.
This isn’t ancient history and it makes me wonder how accurate our current view of the economy is. The Federal Reserve keeps telling us that we can skirt a return to recession. Some members of the Fed and many members of Congress on the Republican side of the aisle say we don’t need to do anything to stimulate the economy.
But if the margin of error at the end of 2008 was a huge five percentage points—8.9% instead of 3.9%--what does anyone really know?
Maybe we should be paying more attention to the average guy and gal on the street. They’ve been saying all along that the economy felt worse than the official numbers indicated. Turns out they were right about 2008 and 2009.
What if they’re right again?
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