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The Economy Will Probably Be Pretty Good On Election Day

This is In Real Terms, a column analyzing the week in economic news. Comments? Criticisms? Ideas for future columns? Email me, or drop a note in the comments.


This week’s Republican convention will probably be remembered for Melania Trump’s plagiarism, Ted Cruz’s pointed non-endorsement of Donald Trump, and Trump’s own record-long acceptance speech. But the convention was also notable for another reason: the near-total lack of discussion of jobs and the economy. Even Tuesday night (advertised theme: “Make America Work Again”) seemed to feature more discussion of Benghazi than unemployment. (Trump’s marathon speech did feature several sections on the economy, but focused more on crime and security.)

That silence stands in stark contrast to the primary campaign, which was often dominated by economic issues such as trade, immigration and the stagnation of middle-class incomes. But maybe it shouldn’t come as a surprise that Republicans are looking to shift the campaign’s focus to other issues: It looks increasingly likely that when voters go to the polls in November, the economy will look relatively strong.

As recently as a month ago, that was far from clear. The surprise “Brexit” decision sent financial markets into a tailspin. A weak jobs report sparked fears of a slowdown in hiring. Recession fears, which had died down since early this year, began to re-emerge. It was not hard to imagine Trump’s team excitedly pulling clips of all the times Clinton praised President Obama’s stewardship of the economy.

This week, though, it was probably Clinton who was applauding as Republican convention speakers repeatedly said she would represent a continuation of Obama’s presidency. The stock market has regained all its post-Brexit losses and is setting record highs. The job market rebounded strongly in June. Other economic measures, such as consumer spending, are strong. In his acceptance speech Wednesday night, GOP vice presidential nominee Mike Pence called Clinton “the secretary of the status quo.” Economically, at least, that might not be such a bad thing.

The election, of course, is still nearly four months away, and economists are notoriously bad at predicting slowdowns. In fact, they aren’t even very good at assessing the current state of the economy; economists didn’t formally recognize the 2008-09 recession until it had been going on for nearly a year. So it’s certainly possible that the economy will look very different in November than we expect today.

Possible, but not likely. The closer we get to the election, the less likely it is that the economy will take a sharp turn before voters cast their ballots — and, just as importantly, the less likely it is that any such turn will show up in the data in time to shift the narrative. By this point in 2008, it was clear that the economy was in trouble, even if economists weren’t yet quite ready to call it a recession. Nearly two-thirds of economists surveyed by The Wall Street Journal in July 2008 expected a recession in the next year. This year, less than a quarter make the same prediction.

It’s helpful to think what a worst-case scenario might look like. Suppose that last month’s uptick in the unemployment rate wasn’t the blip that most economists think but rather the start of a sustained increase in joblessness. That would make May’s 4.7 percent unemployment rate the trough — remember, a low number here is good — of the current recovery. The fastest the unemployment rate has ever risen off a trough was in the late 1950s, when the unemployment rate rose 1.7 points over five months, the equivalent of jumping to 6.4 percent by October.1 (October’s jobs data will be released just four days before Election Day.) That might well be enough to keep Clinton out of the White House. But that kind of rapid increase is rare; even if the economy does take a turn for the worse, the unemployment rate will probably be under 6 percent on Election Day.

Of course, just because the country isn’t in or approaching a recession doesn’t mean voters are happy about the economy. Trump has successfully tapped into a deep well of economic anxiety among many (particularly white) Americans. But it’s easy to overstate the level of economic pessimism. In a blog post late last month, former Federal Reserve Chairman Ben Bernanke noted that even as Americans remain dour about the general direction of the country, they have become more positive about their own financial situation. Most Americans now say that they are better off than they were a year ago, and expect to be doing better still a year from now. No wonder the Republicans focused on Benghazi instead.

Slacker students?

Government student-aid programs are a long-term investment: Taxpayers subsidize the cost of college through federally backed loans, grants and other programs, and students get an education that makes them more efficient, productive workers later on. But according to a new report this week, investors might want to ask for their money back: Rather than subsidizing education, student aid is mostly paying students to slack off.

The report, from the conservative Heritage Foundation, looked at data from the American Time Use Survey (sponsored by the Bureau of Labor Statistics) and concluded that full-time college students spend just eight hours a week in class and just 19 hours a week on any kind of educational activity at all, including homework and extracurricular activities. Even students who don’t work spend just 25 hours a week on education. If taxpayer subsidies were less generous, the authors argue, students would either have to work more — something they evidently have plenty of time to do — or take more classes so they can graduate more quickly, which could help raise dismal college completion rates.

But the study extrapolates far too much from far too little evidence. For one thing, that 19-hours-per-week figure is for the full year, including vacations;2 look at just the core academic year3 and full-time students spend 26 hours per week on educational activities. Moreover, the time-use survey probably understates the amount of time students spend in class even during the academic year. Students who live in dorms are more likely to be interviewed when they are at home with their parents, when they are much less likely to be in class.4 Roughly 40 percent of full-time students report spending no time at all on educational activities (excluding weekends and holidays), which could reveal widespread slacking, but more likely reflects serious shortcomings in the data.

There are also other key gaps. The survey only tracks each person for one day, so we don’t know whether a student who doesn’t have a job one semester might have one the next. And importantly for the authors’ thesis, the survey doesn’t track who receives student aid, so there is no way to know whether subsidized loans are encouraging students to work or study less. There are hints that they don’t: Low-income students, who generally receive the most generous subsidies, spend more time studying than any other group.

Climate questions

Last week I wrote about the major sources of economic uncertainty facing the U.S. over the next 30 years: health care costs, labor force participation, interest rates. Several readers wrote in to say I left out a big one: climate change. Analysts at the Congressional Budget Office, whose long-term budget outlook was the jumping-off point for my column last week, looked at climate change and concluded that its economic impact would be “modest” over the next three decades. (The effects could be much larger over the longer term.)

It’s hard to know how much faith to put in the CBO’s assurances, though. Some subjects, like interest rates or unemployment, lend themselves to the kind of analysis that the CBO engages in: Their path is uncertain, but the basic forces at work are reasonably well understood. Economists may not be able to predict the future with much certainty, but they can at least establish a range of likely outcomes.

Climate change is different. Scientists don’t know how quickly the Earth will heat over the next 30 years or what the physical effects of that warming will be; policy analysts don’t know how governments will react, or what economic costs those decisions will bring; and no one knows all the effects, direct and indirect, that a changing climate could have on the economy. That makes climate change more like war — a real threat, but one that’s hard to quantify.

Number of the week

The typical recent college graduate owed about $27,000 in student debt upon graduation. But here’s the good news: That bachelor’s degree is worth about $500,000 in future earnings.5 (Associate degrees are worth less, about $360,000, but students also take on significantly less debt.)

Those figures come from a big new report on student debt from the president’s Council of Economic Advisers. The report argues that for all the hand-wringing about student debt, borrowing for college remains a good investment for most students. But it also acknowledged that those numbers hide significant variation beneath the surface. For students who don’t finish their degrees, or earn degrees that employers don’t value or happen to graduate in bad economic times, the investment may not pay off.

Elsewhere

Mike Konczal and Marshall Steinbaum of the Roosevelt Institute provide an alternative explanation for the decline in entrepreneurship, job turnover and other measures of “dynamism”: The problem, they argue, is one of demand, not supply. (Anna Louie Sussman has a good summary.)

Greg Ip writes in The Wall Street Journal that infrastructure spending could help the U.S. fend off “secular stagnation” without busting the budget.

In many Western nations, children can no longer count on doing better economically than their parents, according to a new report from the McKinsey Global Institute.

CORRECTION (Nov. 14, 7 p.m.): An earlier version of this article misspelled the name of a Wall Street Journal reporter. Her name is Anna Louie Sussman, not Anna Louise Sussman.

Footnotes

  1. I counted any time the unemployment rate fell and then rose as a “trough,” regardless of how short lived the trend. I then looked at the unemployment rate five months after the trough to see how rapidly the rate rose. There have been 48 such cycles since 1949; in 24 cases, the unemployment rate fell over the subsequent five months, and in 23 cases it rose. (In one case it was unchanged.)

  2. Survey respondents are instructed to report being enrolled in school even if they are on break. The one exception is summer vacation, when students are told to report being not enrolled unless they are taking summer classes.

  3. February through April and September through November, the months when students spend the most time in class.

  4. In theory, college students living in dorms or temporary off-campus housing could be included in the survey. But in practice, relatively few of them are, at least during the school year. (The reasons for this are complicated, but essentially, surveyors call the phone number they have on file for the student’s “household,” which is usually her parents. If the student is away at school, her parents would have to pass on a way to reach her.)

  5. This is the so-called net present value of a degree — how much the additional earnings that come with a degree over a lifetime are worth today.

Ben Casselman is a senior editor and the chief economics writer for FiveThirtyEight.

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