Three years ago it looked as if finally, at long last, after much heavy lifting and a lot of very hard very public-spirited political work by people who had the long-term welfare of the country at heart, that America's long-term spending plans were about to be brought back into balance with the long-term resources of America's government. It looked as though the large budget surpluses now (and in the near future) needed to begin the process of financing the public...

The Wall Street Journal's Alan Murray quotes Alan Greenspan and Mark Zandi, who believe that the key drag on the U.S. economy today comes from foreign policy: uncertainty about just what President Bush is getting us into with respect to Iraq: WSJ.com - Political Capital: ...Federal Reserve Chairman Alan Greenspan takes it even further. In public statements and in private, he makes clear that he thinks eliminating the uncertainties surrounding war with Iraq is more important than passing a stimulus...

The Medium-Term Outlook for the World Economy: Five Questions That Need Answering What one thinks about the medium-term future of the world economy depends on the answers one gives to five questions about productivity growth: 1. Rapid American productivity growth has continued through the recession. What conclusions should we draw from this? This question has two possible answers. The first answer is that changes in America's labor market have eliminated the old pattern by which firms tried to hold onto...

Marty Feldstein, back before the start of the euro, was greatly worried that a single currency would result in too much business-cycle volatility across Europe: countries would not be able to use either fiscal or monetary policies to stabilize their domestic economies because both would be fit to a common European pattern. In Business Week this week, some evidence that his fears were well-founded. Of course, that doesn't tell us what to do now... BW Online | January 24, 2003...

I was cited in a Washington Post profile of CEA Chair R. Glenn Hubbard yesterday: washingtonpost.com: An Economist On a Mission: ...Princeton University economist Paul R. Krugman, also a New York Times columnist, and J. Bradford DeLong, a Clinton administration Treasury official now at the University of California at Berkeley, accuse Hubbard of sacrificing his sterling academic reputation with politically motivated but nonsensical economic utterances. "This is a delicate game," DeLong wrote on his Web site. "You need to retain...

Until I read this, I was all but sure that the NBER's Business Cycle Dating Committee was going to call the trough in December of 2001--say that that month was the end of the recession that started in March of 2001. Now I don't know. And neither does the NBER's Business Cycle Dating Committee. They are waiting and seeing. The NBER: According to the most recent data, the U.S. economy continues to experience growth in output but declines in employment....

The Wall Street Journal quotes Alan Auerbach--one floor down and eight offices north--on the likely effects of the dividend tax cut. WSJ.com - Dividend Plan Straddles Debate Among Academics: ...Alan Auerbach began arguing a new theory. He said the traditional view of dividend taxes told only half of the story. Lowering dividend taxes did make it easier for companies to raise capital, increasing a company's incentive to invest in new projects, he said. But it also made shareholders more demanding....

From Wired, December 2002 DELONG The Slow Countries US productivity keeps growing ? right through the bust. So what?s wrong with Europe? By Bradford DeLong Is it something in the water? Is there some kind of high tech fluoridation that makes equipment work better in Palo Alto, Austin, or Cambridge (Massachusetts) than in Edinburgh, Cologne, or Cambridge (England)? Of course, things have broken down on both sides of the Atlantic. The Nasdaq is down nearly three-quarters since its early 2000...

Brad DeLong's Solow Growth Model Scenario Spreadsheet. The purpose of this spreadsheet is to give you a framework that you can use to calculate your own scenarios for the Solow growth model--the workhorse model for the modern neoclassical theory of economic growth. The equations just sit there on the page. To get an idea of how the model works and what the model means, you need to look at scenarios: at sample toy economies that behave according to the model,...

At least six months after I would have done so (were I in charge), the Federal Reserve cuts short-term safe interest rates from 1.75 percent per year to 1.25 percent per year. This interest rate cut will have effects on economic activity roughly around Christmas of 2003, boosting real GDP then by perhaps $150 billion at an annual rate. Given that it doesn't look to be matched by similar rate cuts in Europe and Japan, it looks too small to...

Average hours per worker shrank at a 1.2% annual rate between the second and third quarters of 2002. The number of employees on payrolls rose at an 0.4% annual between the second and third quarters of 2002. thus total hours shrank at an annual rate of 0.8% between the second and third quarters of 2002. Real GDP grew at a 3.1% annual rate between the second and third quarters of 2002. Put these numbers together, and realize that when the...

A Couple of Figures That Will Need to Have Another Data Point Added to Them Tomorrow The share of total nominal spending (GDP) devoted to investment in information technology equipment and software. The key is that as technology has progressed--as the real price of computation has fallen--the share of GDP devoted to infotech investment has risen extremely rapidly. On top of the secular trend is superimposed the business cycle--the recessions of the early 1970s, of the mid 1980s, of the...

Elasticities of Demand for High-Tech Goods What happens to the share of total spending on information technology capital when the price of IT-capital declines? Here is some evidence since 1987. The number is 0.6: when the price of IT-capital goods declines by ten percent, spending on IT-capital relative to GDP rises by six percent (note: not six percentage points: six percent--i.e., from 4 percent to 4.24 percent....

Optimism with Respect to the Technology, Pessimism with Respect to Its Profitability Take a look at what the Commerce Department's Bureau of Economic Analysis says about the pace of investment in computers and peripherals--both "nominal" investment (how many dollars are spent) and "real" investment (what those dollars buy in terms of computers and peripherals of the quality and performance made in 1996). If you haven't been looking at these numbers or their like recently, they do surprise you: Some salient...

In September 2002 the CPI--the Consumer Price Index--grew by only 0.2% (note that this was not an annualized growth rate: the CPI in September was 2/1000 higher than the CPI in August). Excluding volatile food and energy prices, the CPI--the "core CPI" as it is usually called--grew by only 0.1%. Over the past twelve months, the CPI has grown by only 1.5%. Over the past twelve months, the core CPI has grown by only 2.2%. Most observers think that energy...

A look at the futures market for Federal Funds--the short-term overnight asset whose interest rate the Federal Reserve actually targets--shows that the market (or at least the marginal investor in that part of the market that speculates in Federal Funds futures on the Chicago Board of Trade) expects there to be one and a half more 0.25 percentage-point interest rate cuts over the next four and a half months. Useful if one is discussing expectations and the term structure of interest rates in chapter 6 or chapter 10, and if one is discussing stabilization policy in chapter 13.

More from Next Year's Analyses We already know that the number of hours American workers are going to work this year will be at least two percent less than in 2001, when hours worked were some 1.2 percent lower than in 2000. Because the labor force is still growing by about 1 percent per year, labor market slack--the gap between what America's workers would want to work and what they do work--is some five percentage points of the labor force...

"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...

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...

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...

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...

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;...

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: Economist.com: ...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...

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...

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...

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...

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...

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...

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...

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....

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...

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