"Distress Index" Says Things Still Terrible Despite GDP Bump

The Foundation for Economic Education, the venerable libertarian publisher of The Freeman, makes a rare foray into pop-econometrics with a "Distress Index" that indicates continuing economic troubles. Here's what they say:

Despite a reported increase in GDP in Q3 of 2009, the overall economy remains in deep distress says the Foundation for Economic Education, publisher of the Distress Index. The Distress Index combines government statistics measuring inflation, unemployment, GDP, household debt and industrial capacity utilization. The current score is 58.4, down slightly from a peak of 61.7 in June, the highest since 1975.

Historical analysis shows some correlation between the index exceeding 47.0 and the economy slipping into recession. In March of 1975, the index reached an all-time high of 63.9, more than double the all-time low of 29.5 in February 1973. The index was lowest in the 1990s, averaging 40.1. But the last decade has shown a significant increase to an average of 46.6. Since President Obama took office, the index has averaged 60.3.

The Distress Index was created by Mount Olive College's Dr. Paul Cwik and FEE's Web Director Mike Van Winkle. It is intended as a modernized version of economist Arthur Okun's Misery Index which measured only unemployment and inflation.

The index itself, and how it was calculated.

Comments

[Buck Turgidson]

We cannot allow a distress gap!

[Bob]

I'd post a link to a blog stating that car sales were up over 150% quarter/quarter which is utterly unprecedented (next closest was about 100% in '80) thanks to cash for clunkers. This link would hint that when car sales fall off a cliff this quarter, the distortion could make things look even worse than they would have otherwise been.

Of course, I don't want to be called a spam bot, so you can do the Googling yourselves.

[Fist of Etiquette]

Does distress make me look fat?

I am thinking the President should use the Distress Index to sell a second, bigger stimulus.

[LiberTARDian]

"But the last decade has shown a significant increase to an average of 46.6. Since President Obama took office, the index has averaged 60.3."

So they're comparing an average over 10 years to an average over 9 months.

That shore is sum sigh-un-tif-ic meth-o-dology u got thur.

[John]

Shut the fuck up you retard.

[LiberTARDian]

I'm guessing you weren't on the debate team.

[John]

Actually I was and won a state championship and went to the National Tournement. It is just to debate, you have to have an intelligent opponent. You aren't worth the effort to respond to. I don't usually debate politics with my dog and I think she might have more intelligent things to say than you.

[LiberTARDian]

So you think that comparing an average over 10 years and an average over 9 months is fair?

Only if the data supports your ideology, I reckon.

[John]

Yes, The average over ten years tells you the normal state of affairs. The average over nine months tells you if right now is any different than norma. The ten year average is what gives you the context to understand the nine month average.

[LiberTARDian]

So it's fair to judge less than one quarter of a president's term, even with the extenuating circumstances of the economy he was handed entering office?

It doesn't once occur to you that a libertarian-made index from a libertarian think tank might have an interest in creating an pro-libertarian outcome?

[John]

You really are that stupid. It is fair to judge the current index with the historic average.

You are an idiot. I should have stuck with shut the fuck up.

[Groovus Maximus]

Yes, TARD. It is certainly fair; when he realized what he was getting (and arguably before as holder of the "office of President Elect", arrogant bastard) he should have implemented policies to counteract and mitigate the extenuating factors, such as lowering taxes, relaxing regulation and reducing the size and scope of government. Instead, as the graph shows, all the major indicators of economic health are not in his favor and he should have anticipated this, as per his Economic Wizards and advisors. Fact is, the he and Congress are not following proven policies to spur economic growth, but following policies that are proven to fail.

[LiberTARDian]

Well, MAXI - you *are* paying less in taxes, and it was because of lax regulation in derivatives that he had to increase the "size of scope of government", or we'd very likely be enjoying a second Great Depression.

I'm very sorry that reality does not fit into how you believe the world works. Maybe if you click your heels together 3 times and repeat: There's no place like Galt's Gulch...There's no place like Galt's Gulch...

[John Thacker]

we'd very likely be enjoying a second Great Depression.

But despite this, you get upset when the Distress Index says that it's bad right now, making no judgment on Obama. Someone's touchy.

[Groovus Maximus]

I assure you TARD, I am NOT paying less in taxes. As far as derivatives go, and the financial wizards in general, should have been allowed to fail and the market would have naturally corrected.

Derivatives are a red herring here; the major precipitating factor was the housing bubble, easy credit and poor Fed Policy (under both the former and current president and Congress). Simply put, you can't spend money you don't have as the Piper will eventually come.

A second Depression would have been unlikely, Troll.

As John said, STFU.

[LiberTARDian]

I love the fantasy world you guys live in: the global financial market would fail, but a second Great Depression would be unlikely. And you call me a TARD.

Not to mention your hypothesis on the housing market: you've got the tail wagging the dog. Easy credit and Fed policy came about because banks were buying mortgages, pooling them, and selling them as derivatives.

I mean, this is basic knowledge of the economic crash, and none of you seem to possess it. I guess spending all your time on Reason and the Ron Paul Forums really gives you tunnel vision.

[dave c]

Wow,

This is got to be one of the weakest fucking trolls around here.

It makes Tony look like a genius.

[LiberTARDian]

Excellent point, dave.
Thanks for adding so much to this conversation.

[Ten]

Lovely inversion you got there, Tard, and I'm guessing not your only one, if you know what I mean.

The fiat FIRE economy enabled bank shenanigans, meaning that shit money naturally needs places to go -- they print, we decide.

Get your causes and effects straight, you idiot.

[John Thacker]

So it's fair to judge less than one quarter of a president's term, even with the extenuating circumstances of the economy he was handed entering office?

Did the article or post blame Obama? It just noted what it's been since a particular milestone. And notes that now is certainly worse than normal.

It's not like Obama completely lacks for responsibility, though obviously he was dealt a certain hand. Unless you agree that Clinton shares a ton of blame for 9/11, which happened a month-and-a-half earlier in Bush's presidency than now.

And I suppose you completely agree that all the "net jobs were lost under Bush" arguments are retarded because they have to do with the luck of the business cycle, and it was already evident that a recession was coming throughout mid and late 2000?

[LiberTARDian]

a. Don't ascribe arguments to me that I didn't make. Yet another FAIL in debate tactics; color me shocked.

b. It's not at all fair to pretend that Obama has had a conventional 9 months in office, considering the global economy nearly collapsed as he was still campaigning for the office.

[Tim Cavanaugh]

What does the difference between a Republican and a Democrat mean to a libertarian?

[Groovus Maximus]

Right now? Not much Tim.

Both appear to worship at the altar of profligate spending, though it could be argued R's don't spend quite as much. R's are scared stiff of being called racist, bigoted, fundie homophobes, whereas Dems are more than happy to call them such, regardless of whether the criticism is true (usually not). Dems are also immune to criticism of their displays of the aforementioned traits (see race baiters and proponents of the welfare nanny state).

[Ten]

Who's judging the Fearless Leader, LibTard? Of any of our recent* Fearless leaders, surely this one in particular is only as incompetent to "lead the country out of depression" as any of the other morons were.

Unless you find Presidents magical.

*And yes, I meant to go back to at least FDR, king of kings and lord of lords.

[Groovus Maximus]

No, I am not "wagging the dog" so's to speak.

What led to the factors I mentioned, was The Fed, under Greenspan, keeping interest rates artificially low. Every time there was a rate cut, the market responded. Since the money supply and credit supply was artificially high, helping to cause housing to worth more than it actually was and banks offered loans to folks (with the URGING of notables such as Barney Frank and Chris Dodd) who were poor risks and double whammied with variable rate mortgages, which came to bite buyers in the ass when rates went up and the variable rate kicked in. Which led to the banks, in the form of bonds, to trade credit derivatives, since they had all these loans/mortgage and it was profitable for them to do so.

The Fed, the government encouraging irresponsible borrowing, and people's sense of entitlement led to this mess. The world felt it later because their economies are/were invested in the dollar.

[LiberTARDian]

Yeah, you really are. Astounding how thick-headed ideologues can be.

Assuming the standard It's The Federal Reserve's Fault libertarian/Paultard argument, what would be the point of giving mortgages to people who can't pay?

Actual answer: So their mortgages can be sold and pooled to be sold again as derivatives.

Again, this is standard knowledge to informed people without an ideological chip on their shoulder.

[Groovus Maximus]

what would be the point of giving mortgages to people who can't pay?

Political payoff to constituents.

More specifically "minority" and "disenfranchised" folks who were felt by Dems/Libs were disproportionately underrepresented as home owners. Some arm-twisting, ad homs (banks are racist), and finally a climate where lenders saw a chance to make a buck.

Hey, the bankers vote too. And they pay campaign contributions too.

Ultimately, they didn't give a shit about the homeowners. They were a means to an end.

Quothe Barnum.

[Groovus Maximus]

Ultimately they [The Pols]....

[LiberTARDian]

So these constituents will thank their representatives for getting them evicted, destroying their credit and wreaking havoc with their lives?

And the banks will thank them for these foreclosures that will put them all out of business and out of jobs?

That's an interesting conspiracy theory you got there.

[Ten]

So these constituents will thank their representatives for getting them evicted, destroying their credit and wreaking havoc with their lives?

And the banks will thank them for these foreclosures that will put them all out of business and out of jobs?

For all that self-professed clarity, you really don't know shit about human nature, do you?

And yes, it is to laugh. Bye!

[LiberTARDian]

So these constituents will thank their representatives for getting them evicted, destroying their credit and wreaking havoc with their lives?

And the banks will thank them for these foreclosures that will put them all out of business and out of jobs?

That's an interesting conspiracy theory you got there.

[Tony]

You still clinging to the "it was poor black people's fault" yarn? Jesus Christ for the most disadvantaged demographic in the country--a group whose votes Democrats will never have to fight for--they certainly have wielded a near omniscient level of destructive power over the decades, according to some narratives.

[Groovus Maximus]

So these constituents will thank their representatives for getting them evicted, destroying their credit and wreaking havoc with their lives?

It was their own fault for purchasing homes they couldn't afford. And yes, they thanked them by re-electing them under the folly that government would fix the problem that government created in the first place.

And the banks will thank them for these foreclosures that will put them all out of business and out of jobs?

TARP, bailout and government dependency much?

They made poor investments and decisions: they should have been allowed to fail.

That's an interesting conspiracy theory you got there.

Adjust your own tinfoil hat, troll.

[LiberTARDian]

In MAXI's world, the government kept every single person from getting foreclosed on and every bank was rescued by the government -- and the economy contracted because Greenspan didn't follow the Rand playbook to the letter.

How is Crazy Town these days?

[Groovus Maximus]

I'm done with you TrollTARD.

Your reading comprehension leaves much to be desired and you fail to invoke intelligent discourse at this point.

Your trolling is an epic FAIL!

[LiberTARDian]

I'll take your downshift into personal attacks as your surrender.

Take this opportunity to learn what really brought the markets down, mmkay?

[Groovus Maximus]

Lonewacko much?

FAIL!

You ARE the weakest troll, good bye!

[Tulpa]

I'm guessing you were on the stupidity team.

[LiberTARDian]

Again, I don't think personal insults fly in a debate format. Maybe that's all you guys have to offer when someone challenges your ideology.

[Tony]

You must be new here. These folks think saying STFU is not only the appropriate response to opinions they disagree with, but that it's also funny the 10,000th time.

[John]

Things are not very distressing if you are a public employee, union thug, liberal news hack, Marxist professor, or welfare slug on wall street. It is only distressing if you are a stupid prole trying work living. And it is not like they matter.

[Groovus Maximus]

Proles matter at election time John. Unfortunately, even the proles tend to have short term memories at election time. Hopefully, these statistics and policies (G-d willing there won't be more economic bad news and sabotage) will be remembered in 2010 and 2012.

Or the rest of the stimulus money will be released in time and proles getting money will willingly wish to be duped.

[Groovus Maximus]

Tim, looking at the index as compiled on the website, the usefulness appears to be day to day measuring of the Distress Index. I agree it is not quite as specific as I would like and it doesn't appear to give weight to a specific factor.

As per the FA, 47% appears to be a historical indicator, but I don't think it is meant to be the de facto standard of prediction.

However, the tool would be useful in guiding sound economic policy.

Is it also possible that these scams such as C4C's, "Stimulus plan" (payoffs), and other smoke and mirror tactics may have had a led to a slight, temporary blip in the index.

It took less than 25 months for the full effect of the housing bubble to permeate the economy.

[Tim Cavanaugh]

That chart doesn't exactly give you a sub-atomic level of granularity. What caused the downshift to 58.4% we've been seeing in the last few months? (Not sure how many months because of aforementioned non-sub-atomic-granularity.) Was it the personal savings spike? I don't see how CPI, GDP or TCU could have made much difference, and unemployment could only have made it worse. Without some more methodology, there's no way to tell.

Also, how much predictive value can it have when a mere 25 months separate its best day (Feb. 1973) and its worst (Mar. 1975)?

[Groovus Maximus]

Reply above. Sorry. REPLY FAIL!

[JW]

Holy fuck.

Don't feed the TARD troll!

[Ebeneezer Scrooge]

No, it's a TURD.

Let's just hope it's not sticky.

[Blake]

I don't hear enough about how far off the government GDP ratings really are. For example, as current technology drops in price due to lots of inventory/production plants and not many people buying. The government offsets this large drop in price as a GDP gain. Moore's law doesn't seem to slow down for the recession. This is called hedonic regression, basically making quality add to the GDP. Technology changes with time and it doesn't automatically make our money worth more. I think this is partly why a lot of the numbers seem off (and many other reasons.) This was very enlightening: http://www.chrismartenson.com/.....zy-numbers

[Bill Woolsey]

This questions relate to the division of nominal GDP growth between growth in real output and inflation.

While persistent trends are important for some purposes, when thinking of the business cycle, the changes in marcoeconomic series still show what sort of changes are occuring, even if they distort our understanding of where we are exactly. But who can really translate some macroeconomic variable into an intuitive feel for current well being?

The change between rapid drops in real GDP to small drops, to modest rise tells us something about what is happening. All of the drops were understated or overstated or whatever you think because of how improving technology is accounted for in the statistics. Unless, there is a change during the period in question.

Think about it.

[Bill Woolsey]

What remarkable comments.

Blaming macroeconomic performance on the sitting President is foollish. Approaching this like political whores (but the voters are fools, and how does this impact the polititcal horse race, and how can we better exploit the fools) is really a bit sickening.

The usual way to describe things is that recession and expansion have to do with direction. When total production begins growing again, a recession is over. That doesn't mean that everything is great. It is just that things aren't getting worse.

The expectation is that a market economic system will recover. It is unrealistic that it should be _recovered_ immediately.

While I do think of the economy as being in macroeconmic equilibrium or disequilibrium and so, beginning to move towards equilibrium is just a step in a equilibrating process that will only be completed once equilibrium is reached, defining equilibrium is problematic.

I think the most interesting figure is the total spending rose at a 3.4% annual rate. It barely grew last quarter, after dropping rapidly between October 2008 and March 2009. I think this is good, though a more rapid increase in expenditure would have been better.

As for this distress index, I don't think consumer debt means distress. For some people, for sure, but not always. Unemployment and capacity utilization tell us where we are, and GDP growth tells how what direction we are going. I suppose this is a bit better than indices that include itnterest rates as an obvious bad.

[LogicalUS]

But haven't you heard, in Obama's America we have learned that destitution is what we have needed for the longest time.

Destitution allows people to find their "inner community organizer" once freed from all that food, housing, vacations and clothing! You see, 15% unemployment under a Democrat "messiah" is the cats meow while 4.25% unemployment under that evil BUUUUUUSSSSH is the greatest economic disaster since the 30's.

And didn't Barry Soetoro tell you people that everyone was going to have to "sacrifice"??? Did you think that Michelle really only wanted to spend $45K for a date in New York, she gave up her night out in Venice for you sheeple and you repay the "messiah" one with complaints about lack of jobs, food and money?

As everybody is going to have

[mac]

Guys,

It's good to rip jerks like the TARD a new one, but you could save yourselves the effort. You haven't seen ANYTHING yet. By the time 2012 rolls around, Obummer will be so unpopular that he'll make the outgoing GWB look like Ike by comparison.

Quite probably the biggest growth industry in the nation will be hiring for the Secret Service to protect him and the other members of his administration from the tender ministrations of a violently angry American populace.

Even at this point it is painfully apparent that this whole administration is a classic Peter Principle example. You can bet there are plenty of people outside America who are well into their planning for taking advantage of our weakness.

Meanwhile, at home, business and private investors in this country are scared to death at the prospect of the proposed Obama legislation on cap and trade and government health care. They realize Obama has no idea how business makes a profit, and that he couldn't care less about their problems. There are literally trillions of dollars on the sidelines being held by people who don't trust this administration any further than they can throw the White House lefthanded.

Businesses folding up, for Obama, are a feature, not a bug, in his programming since it's all those EEEVVVILLLLL capitalists getting hurt.
He's got a lot of learning to do.

Unfortunately for all Americans, he's not going to do it on the job so we're going to suffer tremendous damage from his lack of experience. To say he's Carter 2.0 is to give him far more credit for competence than he deserves.

The only good thing about Carter was he made Reagan possible. Let's hope the country is smart enough to learn the same lesson about Dems this time. Meanwhile, hang on to your hat. It's going to be a Hell of a ride!

[Bob]

Tim "sub-atomic level of granularity..."
Could be. The happy talk could also be because it's a week or so before election day.

[James]

Where's Chad? I think we should keep The Three Stooges (w/ LiberTARDian and Tony) all in one place so we can keep an eye on them.

[Dobby]

A Haiku

Obama has failed
The worst President ever
Jimmy Carter smiles!

[red]

----what would be the point of giving mortgages to people who can't pay?

Liberal Actual answer: So their mortgages can be sold and pooled to be sold again as derivatives. ----

Actual answer: To enact lefty wealth transfer to the unfortunate have-nots in our society. To make a truly better world by taking from the rich. Oh, you capitalist banks don't want to lend to people who can't afford it? Well, we have a law that says you have to and a gang of street thugs that will come to your board meetings and threaten you.

Sure, its ok if you bundle those loans to people who can't afford them into derivatives. We have lots of friends on Wall Street who are big contributors who will make millions trading them.