FREAK-est Links

This week: Why is our vision getting worse? Could an airline-style loyalty program work for public transportation? Why rich people are bad at reading the emotions of strangers, and a Cornell study uncovers corruption among Amazon's top reviewers.

The Fed's Wishful (And Wrong) Thinking About Unemployment

No one seems to have noticed that the Fed’s latest unemployment projections just don’t make sense. While most economists are concerned about a jobless recovery, the Fed is forecasting lots of jobs, but little recovery. Yes, today’s projections suggest only tepid output growth in the next few years. And given this, it’s hard to see how we will make much of a dent in the unemployment rate. Yet the Fed believes otherwise, cheerfully (wishfully?) forecasting declining unemployment.

We're Halfway to a Lost Decade

Our current slump began a lot earlier than you think. Which means that we’re halfway to a lost decade.

Many people date the financial crisis as beginning when Lehman collapsed in September 2008. But the economy was already in recession. The NBER reckons the recession began in December 2007. But look closely, and you’ll see that it may have begun a year earlier.

That’s the case I made in my latest Marketplace commentary, which you can listen to here. The point is more easily made with a simple graph. (Click inside the story for a bigger version).

The blue line is the usual measure of GDP, which is obtained by adding up total spending. When you read the newspapers, this is the number they report. But the Fed’s Jeremy Nailewaik has convincingly shown that the red line—which is the sum of all income—is the more reliable measure. In theory the two lines should be identical—one person’s spending is another’s income—but in practice, the measurements differ. I’ve also plotted the peak, trough, and latest reading of each measure.

The New GDP Data Is Bad. The Hidden Data Behind It Is Worse

This morning the Bureau of Economic Analysis (BEA) released its latest estimates of GDP. And there’s bad news, hidden in the details. Most analysts are focused on the fact that GDP growth in the first quarter of this year was unrevised, remaining at 1.8%. But they’re focused on the wrong number.

National accounting aficionados know that hidden beneath the headline number is an alternative estimate of GDP. This alternative is often called GDP(I), because it is based on income data, rather than spending data. And GDP(I) is actually a more reliable estimate. Unfortunately, this more accurate indicator tells us that GDP grew by only 1.2%. That’s bad news.

The Least Radical Case for Happiness Economics

There’s a fascinating debate on happiness going on over at The Economist. Officially, the motion is that: “This house believes that new measures of economic and social progress are needed for the 21st-century economy.” My own contribution tries to discipline the grandiose rhetoric of both sides, concluding that:

[T]he benefits of new happiness data have surely been overstated. But we economists compare benefits with costs. Adding a couple of questions to existing surveys is so cheap that it almost certainly passes any cost-benefit analysis. And when the motion passes, we nerdy social scientists need to stop writing grandiose treatises and get back to the mundane grind of social science, mining these data for yet more incremental insight.

My full argument is available over the fold.

The Economic Benefits of Trust

On the airport bus in Helsinki, a Finnish woman asked my wife, “What is the biggest difference between Europe and the U.S.?” There are lots of possible answers, but the most striking to me is the tremendous diminution of mutual trust in the U.S. over the past few decades. Why does this matter economically? Because a number of economists have shown recently that income levels and real growth depend upon trust—trust greases the wheels of exchange.

The Happiness Wars Continue

There's a growing sentiment among economists that GDP is a poor measure of a country's well-being. (See our recent podcast on the topic; also, the research of Joseph Stiglitz.) The latest fad among European governments seeking to separate the overall health of citizens from sluggish economic data is to ask them if they're happy. The results aren't exactly encouraging. Less than half of British adults feel they are thriving. And France now ranks as the world's most pessimistic country, with only 15 percent saying they expect things to get better in 2011.

The Value of Unpaid Work: Which Countries Do the Most and Why

A new report from the OECD paints a fascinating picture of how citizens from different countries stack up on an assortment of metrics: from who works the longest hours, who shops the most, to who is most trusting of others. The annual report, titled "Society at a Glance 2011 - OECD Social Indicators," is chock-full with interesting data on all kinds of social behaviors.

Get Into My Car: The Congested Future of Worldwide Auto Ownership

Automobile ownership proceeds at a pace that depends on the absolute level of a nation's economic development. Driven by growth in China and India, the number of people who own cars is expected to reach 2 billion by 2030.

How to Spot Advocacy Science: John Taylor Edition

When data looks too good to be true, it's often not telling the entire story. An example of how to spot science that smacks of advocacy.