Statistical Tricks by the White House
The White House is passing economic growth for a post-pandemic recovery.
The White House claims that Biden’s first year in office was “the strongest year for economic growth since 1984.” If you don’t believe me, here’s the White House’s tweet:
The government’s statement is one of the most common misunderstandings surrounding GDP growth rates, especially by politicians. It is no surprise to observe high growth rates following a sharp fall in economic activity. The White House is not seeing growth; it is witnessing a textbook case of a recovery (bounce-back) from the 2020 fall.
A recovery is when a low output level catches up with its potential. Economic recoveries typically occur after a crisis, a natural disaster, or a worldwide pandemic outbreak. Recovery is a reduction in the output gap. Economic growth is when the potential output grows. Semantics can be tricky in economics, but not all GDP “growth” rates depict GDP “growth”; they can also show recovery.
In fact, according to official data, real GDP still falls 1.6% behind its potential output. There is more recovery to achieve before seeing economic growth.1
What we do not see since 1982, however, is the latest reported inflation rate. It seems the government needs to be more careful when looking at economic data before claiming victory.
I’m ignoring a discussion about the accuracy of potential GDP estimations (did it really grow in 2020?). The point, however, is the inconsistency of the White House’s statement.