I Spake Falsely

Max Sawicky sawicky at epinet.org
Thu Oct 8 14:40:55 PDT 1998

Some time ago, somebody offered an argument to debunk the Social Security actuaries' predictions of future growth as too low. The argument went something like, "even in the 30's depression decade, growth was higher." I responded that this wasn't a great argument. For one thing, the average is sensitive to the time period in question.
>From an economic standpoint the right way
to define a period for evaluation is in terms of business cycle peaks. Otherwise, a decade could mean from 1/1/30 to 12/31/39 if we're comparing GDP in 1939 to 1929, 12/31/30 to 12/31/40 if we compare 1940 to 1930, etc.

I also said that in political mud-wrestling, it is probably a good line.

On trying to clarify this, going back to the numbers, it turns out that the veracity of the line depends on choosing one and only one time period (1930-1940).

Below are selected years nominal and real GDP (from the BEA's NIPA of the U.S., vol 1, and the official NBER dates for business cycles:


Nominal GDP

GDP (1992$)

1929 103.8 790.9 peak 1930 91.1 719.7 1933 56.2 577.3 trough 1937 91.8 831.5 peak 1938 85.9 801.2 trough 1939 91.9 866.5 1940 101.2 941.2

Next are the implied real growth rates. The first is average annual, the second continuous (which turn out to be the same for all practical purposes).

Discrete Continuous

1937/1929 0.63% 0.63% 1939/1929 0.92% 0.91% 1940/1930 2.72% 2.68%

1929-37 is the peak-to-peak business cycle of the "depression decade." Obviously not much growth there.

1929 to 39 is arguably as good a definition of "the 30's" as any, and this number won't support the argument that the actuaries are pessimistic. The only ammunition is in the last line, where we get, by current standards, a damn good growth rate of 2.7. The whole scam depends on pushing from the peak of 29 into the beginning of the slump, namely 1930, and adding the boom year of 1940 (8.6% real growth over 1939).

Choosing 30-40 over 29-39 as "the depression decade" would seem to be a matter of taste. 1939 over 1930 would give a good growth number, but I don't see much basis for characterizing 1/1/31 to 12/31/39 as "the thirties" or the depression decade.

On balance the tactic of invoking "the thirties" has to be described as petty and/or disingenuous. We will need better arguments to defend social insurance.

On the other hand, the argument was legally accurate, it really depends on what the meaning of "is" is, mistakes were made, the statement is no longer operative, I regret what has occurred, I take full responsibility, I do not smoke cigars, and I am not a crook.


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