Getting a proper understanding

Engram takes a look at U.S. Economic Performance During the Clinton and Bush Years and provides some insight into one of the big lies of recent years and why it was big.

Most people are simply unaccustomed to allowing the data to influence their thinking, so they adjust the data to fit what they fervently wish were true. You should try hard not to do that. Even though data can be flawed, the best approach is always to seek out the best source of information and to then consider the possibility that what the numbers show is the closest approximation to the truth we have.

He notes that two financial bubbles have popped since 2000 yet the USA average GDP has grown 2.23% compared to 1.69% for the G6 or other major economies. Providing two numbers to compare is better than having one sitting by itself but a proper comparison must go a bit deeper and consider what the percentage means.

A point that is not understood by many is that the percent change figure makes things look better for the G6 than they really are. That’s because, on a per capita basis, the U.S. economy is larger than the economies of the G6.

To illustrate this, he compares a 3% increase in income for a sports star and the average wage earner.

If your income goes up by 3%, you could take a decent vacation with the extra money. If his goes up by 3%, he could probably buy an island with his extra money. That is, the same percent increase translates into a lot more actual money if the starting value is high than if it is low.

This gets into one of those realities that many just don’t get. That reality is the size of the US economy when compared to other countries on the planet. See, for example, US States Renamed For Countries With Similar GDPs at Strange Maps. Or, from the Brookings Institute:

In May [2004], the European Union celebrated the accession of 10 new members. In one fell swoop, by adding their combined GDP to that of the current EU-15, Europe had finally caught up to the United States in economic size. Both economies at present have an annual income of around $11 trillion. Their per capita incomes differ significantly, with the European Union spreading the same income over 170 million more people. Nonetheless, for symbolic as well as practical reasons, the achievement of parity between the EU and U.S. economies marks a milestone.

The fact that the US has such a larger economy than the G6 and is growing at a faster rate means that it is gaining wealth faster. It’s half a percent greater growth represents a lot more money because its basis is so much larger.

If you have not investigated the matter for yourself, you should. The data-based truth is usually more interesting than what you get from well-meaning reporters who unconsciously process information through a left-wing filter.

Like the local CBS news that claimed an uptick in the stock market on Friday after an historic post election loss was a positive reception to the new president, you often don’t have to do much investigating to gain a better understanding. The place to start is to see just how absurd some of what is being posited really is.

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