September 03, 2003
Econ 101b: Fall 2003: The Erosion of Okun's Law

We used to have considerable confidence in Okun's law: that an extra one percentage point rise (or fall) in the unemployment rate over a year would reduce (or boost) that real GDP growth by an extra 2.5 percent over that year because a rising (or falling) unemployment rate would also be accompanied by a falling (rising) share of the population in the labor force and by falling (rapidly rising) productivity. Productivity would fall when the unemployment rate rose for two reasons: first, even when factories are not running at full capacity they still incur substantial setup and maintenance costs; second, even when there isn't enough work for them to do firms would rather hold onto skilled workers than watch them drift away and have to pay to train their replacements the next time the wheel of the business cycle turns. Things have been different, however, in this recession (and to a lesser extent in the preceding early-1990s recession. The standard relationship between output growth and hours worked has gone substantially awry. See that branch poking out of the scatter diagram on the left side? That's the most recent data. (The smaller twig pointing out below and to the left...

Posted by DeLong at 04:22 PM

August 15, 2003
More Good GDP (and Productivity) News About the Second Quarter

News about the economy in the spring released since the initial estimate of second-quarter GDP growth tells us that the second-quarter growth rate is likely to be revised upward significantly--from a 2.4% annual growth rate to perhaps a 3.0% annual growth rate. This is excellent news for production and productivity: Analysts see U.S. 2nd quarter GDP upward revision: Merchandise trade data out on Thursday showed exports rose a healthy 2.4 percent in June, while in real terms, which is what matters for gross domestic product, the trade deficit narrowed sharply to $47.23 billion from $50.04 billion in May. The [trade] deficit was much smaller than that assumed by statisticians in the advance measure of GDP released on July 31, suggesting trade subtracted less from growth than the 1.56 percentage points initially estimated. The trade news comes hot on the heels of significant upward revisions to retail sales figures for both May and June. On Wednesday the Commerce Department unexpectedly upped its June estimate of sales to a rise of 0.9 percent from 0.5 percent, while May now shows a gain of 0.5 percent when it was flat before. The sudden discovery that consumers spent a lot more than first...

Posted by DeLong at 09:54 AM

July 31, 2003
Yes! Good GDP News!

Yes! The second quarter (April-June) showed significantly faster real GDP growth than I (and everybody else) had been expecting: GDP grew at a 2.4% per year annual rate (meaning that second-quarter real GDP was 2.4%/4 = 0.6% higher than first-quarter real GDP. Now IIRC, average hours worked were down 0.2% in the second quarter vis-a-vis the first quarter, and employment was down in the second quarter by 0.2%, meaning that Americans worked 0.4% fewer hours in the second quarter than the first quarter--that labor input shrank at a 1.6% per year annual rate. Combine a 2.4% per year rate of growth of real GDP with a -1.6% per year rate of growth of labor hours, and you have a 4.0% per year rate of growth of labor productivity. That's a very impressive number for the long run. But in the short run it drives a big wedge between the (relatively good) production news and the (relatively bad) employment news. GDP growth accelerates in 2Q - Jul. 31, 2003: Gross domestic product (GDP), the broadest measure of economic activity, grew at a 2.4 percent annual rate in the quarter after growing at a sluggish 1.4 percent rate in the first quarter,...

Posted by DeLong at 11:46 AM

July 17, 2003
Location, Location, Location

One of the most bizarre (from my perspective at least) aspects of the late-1990s high-tech boom in America was its extraordinary concentration in Silicon Valley. With technologies that for the first time allowed a sufficient density of communication that you could do your work and still be well-connected and well-plugged in anywhere with a power socket and a phone line, the premium to being within driving distance or bicycling distance of the Sand Hill Road offramp to Interstate 280 rose to extraordinary and amazing levels. Why? And will things be different in the "next time" as the next wave of high-tech development accelerates? : CONSIDER three snapshots of the IT industry today. First, look at the centre of the business at the turn of the century--Silicon Valley. Parts of this high-tech region to the south of San Francisco, which were buzzing with activity only three years ago, are coming to resemble an industrial wasteland populated by squirrels, racoons and "for lease" signs. In the city of Santa Clara, where almost half of all office space is vacant, rents run at around $1 per square foot, compared with $6.50 in late 2000. Some larger tenants in the city are even...

Posted by DeLong at 12:41 PM

June 02, 2003
A Stronger Forthcoming Rebound in Investment Spending?

Morgan Stanley's Richard Berner turns pessimistically optimistic about the recovery: Morgan Stanley: Incoming data suggest that manufacturing is staging a rebound, following a slide netting more than 2% since last August.† Is the recovery coming faster than we expected a couple of weeks ago?† Certainly several positive fundamentals are in place.† Among them: Declining energy quotes, easier financial conditions, increased fiscal stimulus and reduced uncertainty, all of which should boost demand.† Moreover, a long spending drought has built some pent-up demand in Industrial America.† But it's still a two-tier manufacturing economy, with technology reviving and the rest of manufacturing struggling.† Importantly, manufacturers still face two key cyclical obstacles in a tepid global economy and still-high natural gas prices, while high legacy health and pension costs and competition from China represent key secular challenges. There are certainly glimmers of hope in very recent manufacturing data.† Purchasing managers from Chicago and Milwaukee reported a sharp improvement in both orders and overall business conditions in May over April, and their New York brethren announced that manufacturing business conditions stayed at a high level.† It still looks like a two-tier manufacturing economy, however (see "The Two-Tier Economy Revisited," Global Economic Forum, May 16, 2003).†...

Posted by DeLong at 10:23 AM

May 27, 2003
Note: Greenspan's Views as of May 2003

Greenspan's views, May 2003... Testimony of Chairman Alan Greenspan The economic outlook Before the Joint Economic Committee, U.S. Congress May 21, 2003 Mr. Chairman, I appreciate the opportunity to testify before the Joint Economic Committee. As you will recall, when I appeared here last November, I emphasized the extraordinary resilience manifested by the United States economy in recent years--the cumulative result of increased flexibility over the past quarter century. Since the middle of 2000, our economy has withstood serious blows: a significant decline in equity prices, a substantial fall in capital spending, the terrorist attacks of September 11, confidence-debilitating revelations of corporate malfeasance, and wars in Afghanistan and Iraq. Any combination of these shocks would arguably have induced a severe economic contraction two or three decades ago. Yet remarkably, over the past three years, activity has expanded, on balance--an outcome offering clear evidence of a flexible, more resilient, economic system. Once again this year, our economy has struggled to surmount new obstacles. As the tensions with Iraq increased early in 2003, uncertainties surrounding a possible war contributed to a softening in economic activity. Oil prices moved up close to $40 a barrel in February, stock prices tested their lows of...

Posted by DeLong at 10:44 AM

May 24, 2003
A Question About the Zero Bound on Nominal Interest Rates

Kevin Drum asks what he describes as a "really dumb question": CalPundit: Interest Rates: Now, I know this is a really dumb question (and yes, contrary to popular wisdom, there is such a thing as a dumb question), but why is this so? Why can't the Fed have negative interest rates? Walk up to the discount window, borrow a million dollars, and next month when it comes due you only have to pay back $900,000. Banks would then have an incentive to loan out this money at a negative rate too. As long as their rate was less negative than the Feds, they'd make money on the deal... The problem comes at the second stage of your thought experiment. Yes, the Fed can loan money at negative nominal interest rates to banks. But the banks then have an incentive to simply put the cash in their vaults and keep it there. They could loan it out at negative interest rates and make money (as long as there was a spread), but they would make more money if they did not lend it out and just squirreled it away. To break this greater incentive for banks not to squirrel the cash...

Posted by DeLong at 10:46 AM

May 06, 2003
A Platonic Dialogue Between a Senior Administration Official and a Sane Republican Economist

A Platonic Dialogue Between a Senior Administration Official [SAO] and a Sane Republican Economist [SRE] SAO: The President's Economic Plan is about jobs! Creating jobs! SRE: But... SAO: Creating jobs. The Council of Economic Advisers has estimated that the President's Economic Plan will create 500,000 jobs by the end of 2003. And... SRE: But... SAO: ... one million additional jobs by the first Tuesday of November in 2004. SRE: Yes, I know that you say "Jobs! Jobs! Jobs!" But at least some people at the Treasury Department say different: the linkages from dividend tax cuts and tax rate cuts to investment spending and consumer spending are just too weak to generate such large effects, and the estimates assume that the Federal Reserve keeps interest rates unchanged as fiscal policy shifts, but it does not... SAO: The Council of Economic Advisers has estimated 1.5 million jobs... SRE: And that the true reason for the President's Economic Plan is that it will boost long-run growth by improving the efficiency of investment by reducing the economic drag produced by the double taxation of capital. SAO: We are a disciplined administration. And when there might be conflict in other administrations, we resolve it. We...

Posted by DeLong at 07:44 PM

Kevin Drum Needs to Be Told What to Think

Kevin Drum needs to be told what to think about Mitch Daniels's resignation from the post of Director of the Office of Management and Budget. I will oblige. These are the party-line talking points: The principal task of the Director of the Office of Management and Budget is to tell people "no": he or she needs to tell agencies "no" when they want to expand their programs beyond reason; he or she needs to tell White House political operatives "no" when they want to offer tax cuts beyond reason. A successful OMB Director makes current and projected future federal budget deficits shrink (or current and projected future surpluses expand). Given what has happened to the current and projected future federal budget balances under his tenure, Mitch Daniels may well be the least successful OMB Director in American history. (He may be the second least successful--David Stockman may beat him out for the "worst" title: it's a matter of opinion. You may argue that Mitch Daniels faced a uniquely bad situation when he became OMB Director: a president too lazy to grasp the issues, a senior White House staff that did not understand that, like, bad, like, economic policy could, like,...

Posted by DeLong at 01:19 PM

April 23, 2003
More Intrigue From the Topkapi Palace

According to the National Journal, President Bush's decision to back Alan Greenspan for another term as Federal Reserve Chairman is "no surprise." But if it is "no surprise," why has there been "speculation" that the White House would rather see someone "in that powerful job that is more likely to support his economic policies"? Somebody or somebodies in the White House want it nosed about that it is "no surprise"--that Bush Administration economic policy is now and always has been run by adults. But if that were the case there would not have been a steel tariff. There would not have been that farm bill. And there would not have been the current incoherent set of budget proposals--it's a cyclical stimulus! no, it's a long-run growth program! it will boost the stock market and raise consumption! no, it will raise national saving and reduce consumption! Greenspan does, after all, think that a deficit-widening tax cut is a bad idea right now. And if the White House thinks that somebody with Greenspan's views is the best person in the country to run the Federal Reserve, what does that mean that the White House thinks about the strength of its own arguments...

Posted by DeLong at 09:10 PM

April 12, 2003
How Deep Is the Current Recession?

The Economic Policy Institute has found a measure according to which the current recession is actually the deepest and most severe of post-WWII recessions. The measure? The percentage by which private employment is below its peak level two years after the recession began: "In the two years since the recession began in March 2001, total payrolls have fallen by 2.1 million and private sector payrolls are down by 2.6 million." This is, of course, only part of the story: the current recession is very shallow insofar as production is concerned (in large part because of the rapid underlying productivity growth trend), moderate as far as the unemployment rate is concerned (in part because lots of people have dropped out of the labor force during this recession), and deep as far as private-sector employment is concerned. Which is the "right" measure? Well, it depends on what you are interested in, of course. A balanced picture of the perhaps-still-ongoing recession needs to comprehend all three......

Posted by DeLong at 09:19 AM

April 08, 2003

One of the big problems with reading British periodicals is that you can never tell whether they are being sarcastic or not. For example, take last week's Economist on the Doha Round of trade negotiations: The Doha Squabble: In one corner stands the Cairns group of agricultural exporters (including Canada, Australia and Brazil), plus the Americans. Although there are differences among them, this group wants an ambitious outcome, including the scrapping of export subsidies and big cuts in trade-distorting domestic subsidies and tariffs. The Americans want to phase out export subsidies over five years, to cut subsidies to 5% of the value of farm production and to slash tariffs to no more than 25%. These radical plans admittedly stand in stark contrast to the American farm bill signed by George Bush last year, which dramatically increased farm subsidies. What this shows, argues Mr Zoellick, is that America is ready to dismantle subsidies--but only if the playing-field is level. Now we all know that George Bush's farm bill does not show any readiness "to dismantle subsidies... if the playing-field is level." It shows, instead, that the (weak) part of the Bush Administration (then led by then-NEC head Larry Lindsey, before he...

Posted by DeLong at 02:44 PM

April 01, 2003
Alan Murray Reports on Dynamic Scoring

Alan Murray reports on the Congressional Budget Office's analysis of the effect of the Bush budget proposals on economic growth and on tax collections: - Political Capital: ...The results: Some provisions of the president's plan would speed up the economy; others would slow it down. Using some models, the plan would reduce the budget deficit from what it otherwise would have been; using others, it would widen the deficit. But in every case, the effects are relatively small. And in no case does Mr. Bush's tax cut come close to paying for itself over the next 10 years. For the handful of people who read the report in its entirety, there is another surprise. Of the nine different economic models used to analyze the president's plan, only two showed a large improvement in the deficit over the next decade as a result of "supply side" effects. Both those models got their results by assuming that after 2013, taxes would be raised to eliminate the remaining deficit. The theory is that people will work harder between 2004 and 2013 because they know that their taxes will be going up, and will want to earn more money before those tax increases...

Posted by DeLong at 09:38 AM

March 25, 2003
Is the Senate a Vertebrate?

The Senate shows some backbone... well, not exactly backbone, but at least a notochord... in refusing to go along with Bush Administration plans to boost the long-run deficit and slow the long-run growth of the American economy. God! I really hope the morals and the competence of those who direct the Bush Administration's security policy exceed that of those who direct its economic policy. CNN Politics: WASHINGTON (AP) -- The Senate unexpectedly reversed itself Tuesday, voting to slash more than half of President Bush's proposed $726 billion tax cut and dealing a blow to the keystone of his economic recovery plan. A week after refusing to do so, senators voted 51-48 to reduce the tax reduction's price tag to $350 billion through 2013. Bush has said his plan -- which would eliminate taxes on corporate dividends and reduce income taxes -- is needed to create jobs, boost investment and spur the slumbering economy. Just Friday, the Senate voted 62-38 to reject a similar move to pare Bush's tax plan in half. That plan would have taken the additional money Bush wanted for tax cuts and used it for deficit reduction. Both moderate Sen. Lincoln Chafee, R-Rhode Island, and deficit hawk...

Posted by DeLong at 07:57 PM

March 17, 2003
Why No Free-Trade First Downs?

One of the (few) good things about Republican administrations is that they generally find it much easier to move the free-trade ball forward than do Democratic administrations. Or, at least, they did until this one. Is the Bush Administration's failure to make progress on free trade due to ineptness or to malevolence? Do the High Politicians simply not care? Or do they care, but have no idea about how to run international economic policy? I haven't had anyone explain to me what is going on inside the West Wing, at least not in any fashion I find convincing... U.S. Unilateralism Worries Trade Officials: ... European officials have complained the loudest about the United States breaking trade rules. In one of the largest such judgments, Europe was awarded the right to impose $4 billion worth of trade sanctions against the United States for giving tax breaks to American exporters through foreign sales corporations. European officials say they are tired of waiting for Congress to approve new laws prohibiting these subsidies, and that they may impose 100 percent duties on items like precious stones, sporting goods and agricultural products by the end of the month. The most glaring example here of going-it-alone...

Posted by DeLong at 10:43 AM

March 12, 2003
Mickey Kaus Is Puzzled

Mickey Kaus is puzzled: Don't Rush Me VI - Time for the grand gesture? By Mickey†Kaus: About What Me Worry? I believe whatever Paul Krugman tells me, of course -- he's going to win the Nobel Prize, not me -- but I'm confused. It seems like only two months ago he had me terrified that inflation was going to go down so low it would plunge into negative territory, as in Japan. Now, after reading today's column, I'm worried that the government will decide to "inflate away debt" and "interest rates will soar." ... In other words[u]nless we slide into Japanese-style deflation, there are much higher interest rates in our future.What I don't understand -- and I recognize I may be missing something -- is why we can't end up somewhere in between inflation so low that it's a crisis and inflation so high that it's a crisis. In other words, not in a crisis! If I'm wondering about this, I bet so are many other Krugman readers. Explanation, please! ... Mickey Kaus is puzzled because he doesn't get the fact that that the two different problems that worry Krugman (and me!) operate at different time scales. One--possible deflation--is a...

Posted by DeLong at 07:30 AM

March 01, 2003
Greenspan's Congressional Credit Remains Very Good

John Berry writes that Alan Greenspan's credit remains at gold-standard levels in Congress: Greenspan Remains Popular in Congress: ederal Reserve Chairman Alan Greenspan may be taking sniping fire from anonymous White House officials unhappy that he questioned the immediate need for President Bush's latest tax-cut plan, but he's still a bipartisan favorite on Capitol Hill. Sen. Charles E. Schumer (D-N.Y.) interrupted a Senate Banking Committee hearing yesterday to criticize what he called "an ongoing orchestrated whisper campaign to discredit" Greenspan after his recent testimony. A number of media reports since then have quoted unnamed White House sources as saying Greenspan, whose term as chairman will end in the middle of next year, might be dumped by Bush. A syndicated column by Robert Novak, for example, appeared Monday in the Washington Post with the headline "Goodbye, Greenspan?" and began, "It's difficult to exaggerate the irritation at the White House over Alan Greenspan's gratuitous shot at President Bush's tax cuts." Schumer said threats to dump Greenspan violated the independence of the Fed, noting that Greenspan had supported the concept of a major tax cut that Bush proposed two years ago. Sen. Wayne Allard (R-Colo.) said he thought administration officials "were pleased...

Posted by DeLong at 05:45 PM

September 14, 2002
Greenspan 5, DeLong 2

"You know me," said one senior Federal Reserve policymaker of the 1990s, "and on the inflation-unemployment tradeoff I'm dovey-dovey. I'm not prone to undercount the distributional and productivity benefits from low unemployment. I'm not prone to overweight the costs of moderate inflation. Yet there I was, in the Chairman's [Greenspan's] office, beggin him to raise interest rates. The NAIRU [the unemployment rate at which inflation is steady] couldn't have fallen that far. Potential growth couldn't be that fast. But he would say, 'It doesn't feel like an economy in which inflationary pressures are building'. And he was right. Whenever we monetary economics types get together, sooner or later the topic of conversation turns to Alan Greenspan. "He's not a God," somebody will say. We will agree that he's not a God. "He has a hard time giving a coherent explanation of why he holds his views," someone else will say. We will agree. Often, after a Greenspan explanation, our only reaction will be, "Huh?" "But why is his judgment so good? Why is he so right so often?" someone else will say. And we will have no answer. He knows things about how to analyze the modern business cycle that...

Posted by DeLong at 01:45 PM

September 13, 2002
Handout--the Current Economic Situation in the U.S.

Next Year's Analyses Next February the Commerce Department's Bureau of Economic Analysis is going to release its first estimates of production and productivity for the year 2002. When they do, everyone is going to sit up and take notice--because the numbers will be very surprising. We today already know (although very few think about it) what those numbers will be in rough outline: some 13/16 of the data for the year-to-year growth rates from 2001 to 2002 is already baked in the cake. So let's take a look at what next February's data releases are going to show: The growth rate of output per hour between 2001 and 2002 is going to be absolutely huge. Labor productivity growth will--unless our forecasts of what has happened in the third quarter and will happen in the fourth quarter are really, really off--be faster than in any year since the Korean War. The extraordinarily, ridiculously high productivity growth rates in the fourth quarter of 2001 and the first quarter of 2002 guarantee it. Labor productivity growth in 2002 relative to 2001 is a far cry from the 0.9 percent per year of the period from the mid-1970s productivity slowdown to the mid-1990s. Labor...

Posted by DeLong at 07:11 PM

September 06, 2002
Think Analytically!

Think Analytically! I remember one day during the first Clinton Administration when Joe Stiglitz came into the room to chair a meeting, looked around, noticed that--so far--only economists had shown up, and announced that nobody who did not have a Ph.D. in economics would be allowed to speak at the meeting. (Do I need to point out that that Joe was making a joke?) He was. All of us got it. All of us cheered and applauded. We did so not because we Clinton-era economists all agreed on all the issues--anybody with half an ear to the ground would know that we did not. We did so because we had found that it was possible to make intellectual and policy progress in discussions with economists because we had all been trained to think analytically: to break the issue down into background assumptions about the world, beliefs about the principal causal mechanisms, and claims about the likely effects of different policies on those chains of cause-and-effect. When we disagreed--as we often did--we could quickly ascertain where and why, and then agree on how to go hunting for pieces of information that would help resolve the disagreement. This was in striking contrast...

Posted by DeLong at 05:58 PM

High-Tech Investment

High-Tech Investment If you read your business pages, you might well think that business purchases of computers are way down. Guess what? They're not. This year it looks like America's businesses are going to buy 13% more in the way of quality-adjusted computers and peripherals than in any previous year. In 2001--the only year in which real investment in computers and peripherals fell--quality-adjusted purchases fell by only 3%. Spending on computers and peripherals has indeed fallen. But that's because computers have become cheaper--a lot cheaper--not because American business is installing less computer power this year than in the past. Things look less bright if you aggregate up all high-tech investment--not just real investment in computers, but also software and "other": real investment in this broader category this year will be 4 percent below its year-2000 peak--but still higher than in any year other than 2000. Why the different pattern? The falloff in telecom investment. We are no longer spending a fortune digging holes and stuffing large quantities of fiber optic cables down them....

Posted by DeLong at 05:34 PM

American Labor Productivity Growth Trends

Labor Productivity Growth Trends Bill Nordhaus just gave a paper on U.S. productivity growth. One problem with the subject is that the year-to-year data are so noisy: errors in measuring output this year, errors in measuring output last year, errors in measuring hours worked this year, and errors in measuring hours worked last year all disturb the numbers reported for any given year. As a result, such papers almost always divide the time period up into a few chunks--1977-1989; 1989-1995; 1995-2001--and simply compare averages over those chunks. But the time series is considerably richer. So while Bill was talking, I found myself (a) taking the annual data, (b) adjusting productivity growth for the business cycle (for productivity growth jumps by 0.39 percent for each percentage point increase in this year's unemployment rate, and falls by 0.77 percent for each percentage point increase in last year's unemployment rate), and (c) taking a centered five-year moving average (using our current forecasts for 2002, and taking a truncated four-year not-centered moving average for 2001). The resulting series--the "actual" and the "trend"--are plotted as the green and the red line in the figure below: As a measure of the underlying pace of potential economic...

Posted by DeLong at 05:28 PM

The Economist Joins the Pile on Alan Greenspan

This week's "Economics Focus" in the Economist joins the pack piling on to Alan Greenspan for not deflating America's stock market bubble earlier: ...There may be no painless way to deflate bubbles. Yet the correct test is not whether a bubble can be deflated without some loss of output. Rather, it is whether the early pricking of a bubble causes less pain than letting it grow only to burst later. The longer a bubble is allowed to inflate, the more it encourages the build-up of other imbalances, such as too much borrowing and investment, which have the power to turn a mild downturn into something nastier. If the Fed had let some air out of the bubble earlier, America's economy might now be better placed for future growth... Admittedly, for the Fed to justify an increase in interest rates when inflation was low would have been hardóbut not impossible. It could, for instance, have argued that raising rates and so containing financial imbalances would avoid future economic instability and hence a large undershoot in future inflation. Central bankers do not have a political mandate to respond to asset prices. Even so, Mr Greenspan could still have done more to...

Posted by DeLong at 03:10 PM

BLS August Report

The Bureau of Labor Statistics reports that businesses employed 39,000 more people in August than they did in July (on a seasonally adjusted basis). The BLS also reports that its survey of households produces an estimate of 429,000 more Americans at work in August than in July. Which is more reliable? I have always trusted the business employment survey rather than the household survey as a more reliable business cycle indicator. This month, it is the one that is more pessimistic about the state of the economy. Employment Report...

Posted by DeLong at 01:33 PM

August 27, 2002
Skepticism Toward the Skeptical Environmentalist

I cannot be the only economist who was disappointed by Bjorn Lomborg's column in the New York Times on Monday, August 26. Lomborg makes a number of good points: it is definitely the case that we are pumping enough CO2 and other greenhouse gases into the atmosphere to warm the earth; that many of our environmental problems are the diseases of poverty, early industrialization, and the absence of democracy; that the Kyoto Protocol would be hideously expensive; that it would delay the warming trend for a decade at most; that projected temperature rises up to 2100 are bearable; and that it would almost surely be better to spend the resources that would be sucked up by the Kyoto Protocol on third-world public health and infrastructure instead. But as I read I kept waiting for another shoe to drop, and it did not. It seemed to me that Bjorn Lomborg's argument was radically and dangerously incomplete. It seemed to me that there were three more critical points that Bjorn Lomborg desperately needed to make, but did not. And because he did not it seemed to me that the net effect of his piece was not to reveal wisdom, but to darkeneth...

Posted by DeLong at 01:23 PM

August 26, 2002
Weight Training for Fiscal Policy Analysts

Max Sawicky provides a list of exercises for those hoping to get into shape to interpret tomorrow's Congressional Budget Office "Budget and Economic Outlook" release. It's a very good list of sources that he has put together: Weblog Entry - 08/26/2002: "BASIC BUDGET LINKS" Learn your acronyms, intimidate your debating adversaries. Congressional Budget Office (CBO), Office of Management and Budget (OMB), OMB Mid-Session Review (released today), OMB Director Mitch Daniels testimony (1.6 trillion laughs), Council of Economic Advisers (CEA), CEA publications, basic Federal budget documents (can be downloaded free of charge), the Brookings Institution (Peter Orszag, Gene Sperling, Isabel Sawhill, Allan Schick), the Urban Institute (all budget publications, Eugene Steuerle, Rudolph Penner), the Center on Budget and Policy Priorities, Senate Budget Bulletin (Republican staff; high-level bullshit), Senate Budget Committee (Democrats; the deficit's gonna get yo Mama!), House Budget Committee (Democrats), House Budget Committee (Republican staff; low-level bullshit), Joint Economic Committee (Democrats; good stuff on tax policy, economic stimulus, etc.), Concord Coalition (the sky has been falling for years)....

Posted by DeLong at 09:28 AM

August 24, 2002
Handout - Recent Movements in GDP - Chapter I - Introduction

Handout: Recent Movements in GDP: Chapter I: Introduction (the last two quarters of 2002 are, as of this writing, projections; all data are seasonally adjusted) The most commonly-used measure of the state of the U.S. economy is its real GDP, its real Gross Domestic Product--the market value of goods and services produced for sale (plus some extras, like owner-occupied housing) in the country. The graph above shows recent movements in seasonally-adjusted real GDP in the United States. ("Seasonally adjusted" means that the data have been purged of the normal seasonal patterns of economic activity: manufacturing booms in the late summer and fall to get ready for Christmas, and retailing booms in late fall for Christmas as well, education is low during the summer, and construction is low during the winter). Discussion: Even over the short four year period covered here, we can see the increasing productive power of the U.S. economy. By late 2002 (according to our projections, at least) real GDP will be some ten percent higher than it was four years earlier. When you reflect that the U.S. economy is running much less "hot" today than it was in 1999--compare the then-unemployment rate of roughly 4 percent to...

Posted by DeLong at 07:28 PM

August 21, 2002
America's Date with Deflation?

America's Date with Deflation? Two years ago, at the peak of the late-1990s boom, the American economy was slightly overheated. As the unemployment rate fell to four percent and below, inflation began to creep upward, rising by between a quarter and half a percentage point each year. By late 2000 it was very clear that America's GDP was one to two percentage points above potential output--above that level at which aggregate demand balanced aggregate supply, at least in the sense that there was neither upward nor downward pressure on inflation. Today things are very different. Today, in the summer of 2002, America's level of real GDP is running some two percentage points higher than it was in the summer of 2000. However, underneath is the extremely strong underlying productivity growth trend driven by the very real technological revolutions in data processing and data communications. These technological revolutions have boosted potential output by perhaps seven percent over the past two years. Thus today America's real GDP is not one to two percent above but three to four percent below potential output. How do we know this? Simply look at the unemployment rate: today America is producing two percent more than it...

Posted by DeLong at 01:22 AM

August 16, 2002
How Large Is the Output Gap?

How large is the output gap--the gap between the economy's current level of production and potential output, the level of production consistent with stable inflation? Paul Krugman has some smart things to say about this question. My answer? That two years ago the output gap was -1 percent--that is, actual production was 1 percent higher than the level consistent with stable inflation--and today the output gap is 4 percent: we could be making 4 percent more stuff without having to even begin to worry about inflation starting to creep upward. I do, however, have one criticism to make of Paul Krugman's argument. He talks about "excess capacity." There can be--and is--excess capacity in individual industries, like telecom (although this will be quickly taken care of as telecom firms go bankrupt, their assets are taken over by other companies with rational capital structures, and telecom service prices fall through the floor). There's no such thing as "excess capacity" for the U.S. economy as a whole. Further declines in the dollar would spur demand for U.S. exports and for U.S. producers of import-competing goods. Further declines in interest rates would (with proper management of the state of our financial institutions and operating...

Posted by DeLong at 01:50 PM

August 15, 2002
The Course of the Recession

Last month's revisions to the NIPA produced a three-quarter decline in real GDP in 2001, instead of the preliminary one-quarter decline. Nevertheless, real GDP declined by only 0.6 percent before beginning its bounce-back in the fourth quarter of 2001. But the most interesting series remains the unemployment rate, still trending upward as real GDP grows less rapidly than productivity plus the trend increase in the labor force, and thus the proportion of America's potential workers left idle continues to grow. Charts from the Wall Street Journal....

Posted by DeLong at 04:22 PM

August 11, 2002
New Data Confirm Amazingly Strong Productivity Trend

Usually reliable sources report that as the preliminary estimates of productivity growth were reported over the past year, Alan Greenspan was dumbfounded. "I don't believe it," he is supposed to have said. "You just can't get such high productivity growth in a recession. It will be revised down." And I don't know anybody who didn't agree, to some degree at least. Well, the revisions are in, and the productivity growth trend is a little bit weaker, but only a little bit. This leaves one big question: if this is productivity growth during a recession, what is the underlying trend rate of productivity growth now? I find it hard to think of a scenario in which trend productivity growth is not continuing the acceleration that began in the mid-1990s--and thus there is reason to think that the next eight years will see more rapid productivity growth than the past seven. One caveat: with productivity surging, it's hard to be pessimistic about GDP growth, but it's easy to be pessimistic about unemployment. Productivity Strong Despite Revisions ...Productivity gains slowed with economic growth in the second quarter, but in the past year, the amount of goods and services produced for each hour...

Posted by DeLong at 04:26 AM

June 01, 2002
Older Handouts

Here are some older handouts (from before the Great Reorganization of this website)....

Posted by DeLong at 07:38 PM