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Economics & Research Blog

The Sky is Not Falling


By Dr. Joe Webb
Published: March 15, 2007

Today's Producer Price Index (PPI) report was pretty bad, and we should also expect the Consumer Price Index (CPI) tomorrow to be equally disappointing. They don't always move in lockstep, but the main run-up of late has been energy, shared by both.

The reason they don't always move together is that the PPI has materials and various processed goods, and does not follow through all the way to the consumer. In that gap, all kinds of things occur, such as productivity in further manufacturing, transportation, warehousing, and merchandising.

The "sky is falling" folks are out screaming about sub-prime mortgage markets collapsing. I can't believe the misreporting and misrepresentations about this story, claiming that foreclosures are at their highest levels in history.

Most stories never cite a comparison year or specifically identify the unit of measure. First of all, they can't be record foreclosures in terms of percentages. Anyone ever hear of "The Great Depression"? It seems that none of the records go back that far, and that the data series they are citing are quite new.

This whole thing piqued my interest and I went into the Census records. In 1940, the home ownership rate was 43%; today, it is 66%. In 1940, there were 34 million households; today, there are 113 million. In 1940, there would have been 14 million home owners; today, there are almost 75 million, more than 5 times. Of course, with a rate of 5x, you could set a record for foreclosures, conceiveably, but this is truly data misrepresentation in the press.

These are subprime mortgages, and this is the kind of irresponsible lending that the Fed was trying to stop by raising rates. These kinds of abuses are always punished by the marketplace, so the Fed should declare victory, nonetheless, because it would have happened anyway.

When they meet next week, they are not likely to raise rates, but will talk about how worried they are about inflation. Initial jobless claims data are still bullish for the economy, with the four-week average dropping to 329,250. Anything below 400,000 is good. Energy prices have risen in the last few weeks, but are still below the worst of last year. Keep these numbers in mind: $3.75, $100, $6, $160. To equal the gas prices of 1980ish, gas has to go to $3.75, and oil has to hit $100 a barrel. Adjusted for the efficiency of energy use, to be truly equivalent in their negative economic impact, it has to be $6 a gallon and $160 per barrel. If these prices were a real problem, people would be cutting back on driving.

They are not. Another thing I did at the Census is estimate how many of our 300 million were not around or aware of 1980. The answer is about 120 million people. Sometimes I think every one of those 120 million people think that history started the day they were born. Many of them write for newspapers... about economic issues... and think that what happens today is the absolute first time it has ever happened before.

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink's Economics and Research Center.



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