November 03, 2003

The State of the Business Cycle

Notes for my talk today for the Berkeley Faculty Forum Lunch on the state of the business cycle.

Posted by DeLong at November 3, 2003 10:57 AM | TrackBack

Comments

My big fear when it was cleat Bush would be the next President was that the economy had really entered a new period of high productivity, a new economy, and that whoever held the reigns at the time would reap the enormous benifit simply from being there. It appears that Bush has reaped the benefit (I do not see how anyone could seriously attribute these productivity gains to Bush policy), but his policies have been so bad that they have kept it at bay. So bad in fact that they have kept the benefits at bay despite pouring money into the sytem.

Posted by: theCoach on November 3, 2003 11:10 AM

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My big fear when it was cleat Bush would be the next President was that the economy had really entered a new period of high productivity, a new economy, and that whoever held the reigns at the time would reap the enormous benifit simply from being there. It appears that Bush has reaped the benefit (I do not see how anyone could seriously attribute these productivity gains to Bush policy), but his policies have been so bad that they have kept it at bay. So bad in fact that they have kept the benefits at bay despite pouring money into the sytem.

Posted by: theCoach on November 3, 2003 11:15 AM

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Nice analysis!

Posted by: anne on November 3, 2003 01:17 PM

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Nice presentation -- but at 6.1% unemployment, and after almost a decade of overvalued US currency and the dot.com bubble bursting, I am utterly unconvinced that the US could do much much better.

If the red line productivity is going up, that inevitably means wage and/or hiring restraints on new jobs.

Look at the pro-Bush side: after a huge market crash (comparable to 29?) at the beginning of his term, and 50% over-employment (based on 6 vs 4% unemployment), or some 2% over-employment (based on 94 vs 96% employment), Bush and Greenspan have given the economy an extremely soft landing. Asset prices haven't crashed; most house prices haven't crashed; the economy has shown sluggish growth rather than depression.

Aren't 4 years of sluggish growth better than 2 years depression, 2 years of boom?

Your envious desire to inflict on the $200 000+ crowd punitive taxation has to be suspect -- THEY are the ones, if anybody, who have to be doing well to increase the hiring through investment. Well, OK, consuming mass quantities of the same ol can take up some production slack, and reduce current restructuring. But 6% is NOT 9%, it's more likely pretty close to sustainable long-term rate.

Posted by: Tom Grey on November 4, 2003 02:07 AM

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A question about your (and NBER's) figure which compares the development in employment during this recession with the corresponding average development during the 6 previous recessions. Are the differences not influenced (if not determined) by the demographic changes in the labour force e.g. the relatively smaller younger generations and the retiring baby boomers?

Johnny

Posted by: Johnny í Grótinum on November 4, 2003 07:05 AM

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Tom Grey: "I am utterly unconvinced that the US could do much much better."

I suppose it depends on what the meaning of 'much much' is. By Mankiw's reckoning (echoed in the '1.5 million jobs' line that Bush and Snow have also been using), GDP is 2% higher and employment is ~1% higher (the 1.5 million jobs) than it would 'otherwise' be. It seems pretty obvious to me that for all the hot-check writing that's been done, a considerably brighter employment picture ought to be possible. (Since otherwise an 0.5 elasticity of employment with respect to GDP seems like a pretty ineffective jobs program, I do wonder if the 1.5 million figure was picked because it Sounds Like A Lot and perhaps becuase it looks like it's in the range that can be defended as a Reasonable Dispute Among Those Macroeconomists.) As has been pointed out elsewhere by Brad and Paul Krugman, eventually the Fed will be moved to offset the stimulus and any 'excess' employment will go away. Meanwhile, future taxpayers will foot a whopping bill for the Bush deficits, which could have been a lot smaller had there been a targeted, temporary stimulus package.

"Your envious desire to inflict on the $200 000+ crowd punitive taxation has to be suspect -- THEY are the ones, if anybody, who have to be doing well to increase the hiring through investment."

I think Douglas Holtz-Eakin's dynamic scoring exercise, which IIRC failed to materialize any supply-side effect net of the deficits' drag on the economy, should pretty much put this old saw to rest. And if you look at the myriad ways the market economy is conceiving to part the wealthy from their money (luxury cars, luxury bathrooms, etc.), the argument that they're subject to 'punitive' taxation (or had been under Clinton) seems dubious.

Posted by: Tom Bozzo on November 4, 2003 08:55 AM

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Chairman Greenspan, when dissatisfied with the data available to assess the wealth effect in the boom days of the late 1990s, had his guys combine two existing data sets to get a better handle on who it was who was doing the spending in response to wealth gains. There result? At the time, when wealth gains were overwhelmingly among stock holders (the wealthy), whaddayaknow, the wealthy were spending like drunken sailors, not saving so much. There is no capitalist heroism on view here. This wasn't a tale of the prudent ants providing capital to boost the productivity of feckless grasshoppers. Foriegn capital was a big source of funds for the late 1990s expansion. The Federal Reserve doing a growth experiment was a big source of funds for the late 1990s expansion. Now, folks keep dragging up this "pamper the investor class" argument when there is no shortage of investment funds, nominal rates are low, and the stock market is doing fine. We have this legend of the (rich) saving class and the (poor and middle class) spending class, but that is not what we saw over the past decade. When the stock owning classes recieved a windfall, they spent it. When the far wider homeowning classes received a windfall, they spent it. In both cases, that spending behavior seems to be a large part of what drove growth. So by all means, lets give a tax break to the stock owning classes.

And, while I don't pretend to know what Brad earns, the notion that his behavior is "envious" seems based on an assumption (a pretty catty one, at that) that he is not clocking $200k. Now, how would ya know that?

Posted by: K Harris on November 4, 2003 10:03 AM

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