Imagine that it’s grand final day, only rather than being the massive television spectacle we’re accustomed to, no cameras or journalists are allowed inside the MCG. No spectators are allowed to communicate the score with anyone outside the ground.
Some details might trickle out. We hear that Hawthorn was up at quarter time. The crowd noise is deafening early on, but quieter as the game goes on. Word gets out that Buddy Franklin and Cyril Rioli have both been injured and that Mark LeCras has kicked seven goals for West Coast.
Would you want to call the result of the game based on this information? It sounds like West Coast has the upper hand. Journalists with space to fill and eyeballs to attract might want to grope for a sensational sounding headline – ‘Signs Not Good for Hawks’ doesn’t quite rate alongside ‘Hawks in Shock Loss’. But really, there’s no way to know the result of the game based on that information.
State economies are a bit like that ‘black box’ MCG . We get bits and pieces of information month-by-month and quarter-by-quarter, some of it very useful and important, but we only find out how much each state has grown once a year. The ABS tells us about unemployment and retail trade each month, and something called ‘state final demand’ each quarter, but to diagnose a recession we need something more – we need to know the gross state product (GSP) of each state, the equivalent of GDP for the country. Only with this figure can we diagnose a recession, by which we usually mean a sustained fall in the volume of goods and services produced in an economy.
That hasn’t stopped media outlets talking about a recession in Victoria on the basis of the state final demand figures that were released yesterday. Ross Gittins explained why this is potentially misleading in The Age and the SMH at the end of last year. The crux of the matter is that the SFD figures don’t take into account trade between the states. If spending in Victoria falls, but demand from West Australia for Victorian goods and services soars, then the Victorian economy might be humming along at a reasonable pace. Has this happened? I’ve no idea, and neither does anyone else.
Gittins said that the state final demand figures:
…exaggerate the true extent of the differences between the states.
So why do the media make so much of them? Because, at a time when the resources boom is doing so much to change the industry structure of our economy, there’s much interest in what this is doing to the respective sizes of the state economies.
The quarterly state final demand figures don’t give reliable answers to this question, but they’re the best that regularly come our way.
But also because the ever-intensifying competition between the news media has prompted them to select their news on the basis of all care but no responsibility. If some information is interesting or controversial it will be published, even if the journalists know or suspect it’s dodgy. After all, if I don’t do it, my competitors will.
It’s possible that Victoria is in recession. Nobody knows. The Victorian economy certainly isn’t performing very well. Unemployment has risen, and a range of partial indicators (including state final demand) don’t look good. I’m happy to call that a ‘slump’, a ‘slowdown’, even a ‘shitstorm’. I’d rather reserve the ‘R’ word for times when we’re sure.
Incidentally, I’m not wedded to the definition of a recession that journalists like to use, either – the one that calls a recession based on whether we’ve experienced two consecutive quarters of declining output. The two quarters definition doesn’t really work at the state level, given that we don’t have quarterly data. In the US, an expert panel decides when to label a soft patch as a ‘recession’. That seems like a good idea. What doesn’t seem like a good idea is calling a recession based on partial, and potentially misleading, information, just as I wouldn’t want to call the winner of a football match based on the volume of cheers emanating from the ground.