The second-quarter gross domestic product numbers came out. The newspapers as well as Republicans pounced on depression growth as well as anemic project growth. The Democrats rebut growth is growth as well as tell us of the steady project gains. How bad is the economy?
Economists know that levels thing , as well as that long-run growth matters to a greater extent than than anything else. I made a few graphs to emphasize these points.
Start amongst the grade (in logs) of existent GDP. (This is an update of a graph I saw on John Taylor's blog.)
Looking at levels yous encounter the electrical flow awfulness amend than past times looking at growth rates. gross domestic product declined almost 5% inward the recession , but thence started growing at a glacial stride , averaging 2.4% since the trough. We seem stuck inward this boring growth trap.
If yous distrust tendency lines , yous are wise. But this 1 reflects a venture historical pattern. Here is existent gross domestic product as well as the 1965-2007 tendency through postwar history.
You tin forcefulness out encounter that the economic scheme has quite reliably returned to the tendency delineate later recessions.The 1950s had a steeper tendency , but at that spot likewise the little recessions were followed past times catchup growth.
Here is what the recovery is supposed to hold back similar (Again , thought stolen from John Taylor , except I'm using trends rather than "potential GDP'' which I distrust.)
To last fair , I gibe the tendency through 1980 , thence I would non role ex-post information. You encounter that later the severe 1980 recession at the fifty-fifty to a greater extent than severe 1982 recession , the economic scheme recovered to tendency , past times posting a few years of 6% growth.
The tragedy is poorly expressed inward growth rates. By 1987 , the economic scheme was dorsum on the prior tendency line. We are forthwith 14.5% below the trendline , as well as each twelvemonth that goes past times similar this nosotros lose approximately other one-half a percent. The average individual inward the economic scheme is producing 14.5% less , as well as earning 14.5% less , than if nosotros had followed the path next the 1982 recession.
That's a lot -- as well as a lot to a greater extent than than the litany of quarterly growth rates suggest.
I used trends , rather than the CBO potential output. If yous read how they instruct far , you're probable to produce that too. But hither is the same graph contrasting my tendency as well as the CBO's potential
This is tragic. The CBO is giving upwards on us. The CBO potential , which goes towards a 2.35% long run growth charge per unit of measurement , says that what nosotros are seeing forthwith is the novel normal. All nosotros tin forcefulness out promise for is a pocket-size recovery , as well as thence anemic , sclerotic growth forever later that. The departure betwixt 2.3% as well as 3.0% adds upwards fast equally the years instruct by. (And the CBO has been bending the tendency delineate downward steadily equally the recession goes on. Back inward 2005 , it's "potential" looked similar my "trend." They didn't encounter a permanent downward shift inward grade or reduction inward growth rates. Look for "potential" to maintain declining.)
Well , mayhap the CBO is doing its project equally forecasters , maxim "here is what volition ambit if yous proceed downward the introduce policy path ," non "here is where the economic scheme would last if yous adopted growth-oriented policies."
What well-nigh employment? I detect employment to a greater extent than pregnant than unemployment. Unemployment agency project search. It agency people answer a survey maxim they don't accept a project , as well as are actively searching for a job. It does non count all the people who gave upwards , or went on disability (effectively ending their careers) , early on retirement , or are simply living inward Mom's basement as well as playing video games. (I don't hateful to brand lite of it. That may last the most tragic , equally the adventure to accumulate skills is lost.)
Here's a skillful summary mensurate , the ratio of employed people to the population
This is actually tragic. Employment declined past times well-nigh seven 1 M one thousand people , from 63% of the population to well-nigh 58%. And it has stayed at that spot always since. The "job gains" yous take away heed well-nigh inward the word are simply barely keeping upwards amongst population. As nosotros are well-nigh 14% below tendency as well as slow losing dry reason , nosotros are seven 1 M one thousand jobs curt as well as sitting at that spot too.
The link betwixt occupation as well as output is productivity. To maintain the numbers uncomplicated hither , I made plots of output per worker. Output per sixty minutes , as well as corrections for demographics as well as working capital alphabetic lineament role are amend , but this is simpler as well as industrial plant well-nigh equally well. Here is a graph of productivity.
I crammed a lot of information inward this graph. The get-go thing to notice is the demeanour inward the recession as well as now. There was a dip inward productivity -- output roughshod to a greater extent than than the seat out of workers fell. But it has since recovered.
In the curt run , working capital alphabetic lineament doesn't alter much , thence equally a stone oil direct yous brand to a greater extent than output when yous hire to a greater extent than workers (or increase hours) as well as vice versa. So , gross domestic product = Productivity x workers. To instruct to a greater extent than workers , nosotros demand to brand a lot to a greater extent than GDP. The lackluster gross domestic product growth is the other side of the terrible occupation coin.
There's to a greater extent than inward the graph. In the long run , ascension productivity is behind everything skillful inward the economy. It's what gives to a greater extent than income per capita. Rising productivity is the exclusively promise for paying for entitlements as well as getting out of our deficit trap. It's the primary promise for long-run gross domestic product growth , later the empolyment-population ratio reverts to where it should be. Rising productivity comes from novel ideas , novel companies , novel ways of doing business. It isn't all pleasant. Lots of incumbents lose out. Rising productivity is the heart as well as soul of a "growth" agenda equally economists sympathise the word.
You encounter inward the graph that something terrible happened inward the 1970s. Productivity , which was behind the large postwar nail , slowed downward to a glacial 1% per year. 1982 marked a intermission inward that equally well. Productivity started growing 1.69% per twelvemonth , producing the nail of the belatedly 1980s as well as 1990s , as well as incidentally producing large Federal surpluses.
OK , but the far right of the graph doesn't hold back thence skillful does it. Here it is , blown upwards , amongst a 2003-today tendency marked inward equally well.
This is an economists' horror movie. Yes , productivity did rebound. But it seems to last growing slow equally well.
The trends are an economists' horror movie. Real gross domestic product seems non to last recovering at all -- no menstruum of swift growth to instruct dorsum to a trend. We seem stuck at 2.4% growth forever. The CBO is giving upwards on us too. Employment volition non recover equally a fraction of population until the economic scheme recovers. We seem stuck at depression occupation forever. And forthwith nosotros seem headed to a 1970s productivity slowdown equally well.
I don't persuasion this equally contentious , exterior of Presidential politics. Paul Krugman thinks the economic scheme is pretty awful too.
What to do? If exclusively it were thence uncomplicated equally to accept the Fed impress upwards approximately other 2 trillion dollars , or accept the Treasury borrow approximately other $5 trillion as well as blow it on stimulus boondoggles. We're stuck inward sclerotic growth , as well as to everyone but a few die-hard extremists , that agency growth-oriented policies are the exclusively way out.
Disclaimer. Yes , I know at that spot are amend ways to mensurate all this , specially productivity. This is an endeavor to pigment the basic painting using the simplest numbers. The message is , hold back at the levels as well as hold back at the trends. If yous produce that amongst amend information , yous volition accept gotten the message.
Data are from the St. Louis Fed's wonderful Fred database , serial GDPC96 , GDPPOT , EMRATIO.
Economists know that levels thing , as well as that long-run growth matters to a greater extent than than anything else. I made a few graphs to emphasize these points.
Start amongst the grade (in logs) of existent GDP. (This is an update of a graph I saw on John Taylor's blog.)
If yous distrust tendency lines , yous are wise. But this 1 reflects a venture historical pattern. Here is existent gross domestic product as well as the 1965-2007 tendency through postwar history.
You tin forcefulness out encounter that the economic scheme has quite reliably returned to the tendency delineate later recessions.The 1950s had a steeper tendency , but at that spot likewise the little recessions were followed past times catchup growth.
Here is what the recovery is supposed to hold back similar (Again , thought stolen from John Taylor , except I'm using trends rather than "potential GDP'' which I distrust.)
To last fair , I gibe the tendency through 1980 , thence I would non role ex-post information. You encounter that later the severe 1980 recession at the fifty-fifty to a greater extent than severe 1982 recession , the economic scheme recovered to tendency , past times posting a few years of 6% growth.
The tragedy is poorly expressed inward growth rates. By 1987 , the economic scheme was dorsum on the prior tendency line. We are forthwith 14.5% below the trendline , as well as each twelvemonth that goes past times similar this nosotros lose approximately other one-half a percent. The average individual inward the economic scheme is producing 14.5% less , as well as earning 14.5% less , than if nosotros had followed the path next the 1982 recession.
That's a lot -- as well as a lot to a greater extent than than the litany of quarterly growth rates suggest.
I used trends , rather than the CBO potential output. If yous read how they instruct far , you're probable to produce that too. But hither is the same graph contrasting my tendency as well as the CBO's potential
This is tragic. The CBO is giving upwards on us. The CBO potential , which goes towards a 2.35% long run growth charge per unit of measurement , says that what nosotros are seeing forthwith is the novel normal. All nosotros tin forcefulness out promise for is a pocket-size recovery , as well as thence anemic , sclerotic growth forever later that. The departure betwixt 2.3% as well as 3.0% adds upwards fast equally the years instruct by. (And the CBO has been bending the tendency delineate downward steadily equally the recession goes on. Back inward 2005 , it's "potential" looked similar my "trend." They didn't encounter a permanent downward shift inward grade or reduction inward growth rates. Look for "potential" to maintain declining.)
Well , mayhap the CBO is doing its project equally forecasters , maxim "here is what volition ambit if yous proceed downward the introduce policy path ," non "here is where the economic scheme would last if yous adopted growth-oriented policies."
What well-nigh employment? I detect employment to a greater extent than pregnant than unemployment. Unemployment agency project search. It agency people answer a survey maxim they don't accept a project , as well as are actively searching for a job. It does non count all the people who gave upwards , or went on disability (effectively ending their careers) , early on retirement , or are simply living inward Mom's basement as well as playing video games. (I don't hateful to brand lite of it. That may last the most tragic , equally the adventure to accumulate skills is lost.)
Here's a skillful summary mensurate , the ratio of employed people to the population
The link betwixt occupation as well as output is productivity. To maintain the numbers uncomplicated hither , I made plots of output per worker. Output per sixty minutes , as well as corrections for demographics as well as working capital alphabetic lineament role are amend , but this is simpler as well as industrial plant well-nigh equally well. Here is a graph of productivity.
In the curt run , working capital alphabetic lineament doesn't alter much , thence equally a stone oil direct yous brand to a greater extent than output when yous hire to a greater extent than workers (or increase hours) as well as vice versa. So , gross domestic product = Productivity x workers. To instruct to a greater extent than workers , nosotros demand to brand a lot to a greater extent than GDP. The lackluster gross domestic product growth is the other side of the terrible occupation coin.
There's to a greater extent than inward the graph. In the long run , ascension productivity is behind everything skillful inward the economy. It's what gives to a greater extent than income per capita. Rising productivity is the exclusively promise for paying for entitlements as well as getting out of our deficit trap. It's the primary promise for long-run gross domestic product growth , later the empolyment-population ratio reverts to where it should be. Rising productivity comes from novel ideas , novel companies , novel ways of doing business. It isn't all pleasant. Lots of incumbents lose out. Rising productivity is the heart as well as soul of a "growth" agenda equally economists sympathise the word.
You encounter inward the graph that something terrible happened inward the 1970s. Productivity , which was behind the large postwar nail , slowed downward to a glacial 1% per year. 1982 marked a intermission inward that equally well. Productivity started growing 1.69% per twelvemonth , producing the nail of the belatedly 1980s as well as 1990s , as well as incidentally producing large Federal surpluses.
OK , but the far right of the graph doesn't hold back thence skillful does it. Here it is , blown upwards , amongst a 2003-today tendency marked inward equally well.
This is an economists' horror movie. Yes , productivity did rebound. But it seems to last growing slow equally well.
The trends are an economists' horror movie. Real gross domestic product seems non to last recovering at all -- no menstruum of swift growth to instruct dorsum to a trend. We seem stuck at 2.4% growth forever. The CBO is giving upwards on us too. Employment volition non recover equally a fraction of population until the economic scheme recovers. We seem stuck at depression occupation forever. And forthwith nosotros seem headed to a 1970s productivity slowdown equally well.
I don't persuasion this equally contentious , exterior of Presidential politics. Paul Krugman thinks the economic scheme is pretty awful too.
What to do? If exclusively it were thence uncomplicated equally to accept the Fed impress upwards approximately other 2 trillion dollars , or accept the Treasury borrow approximately other $5 trillion as well as blow it on stimulus boondoggles. We're stuck inward sclerotic growth , as well as to everyone but a few die-hard extremists , that agency growth-oriented policies are the exclusively way out.
Disclaimer. Yes , I know at that spot are amend ways to mensurate all this , specially productivity. This is an endeavor to pigment the basic painting using the simplest numbers. The message is , hold back at the levels as well as hold back at the trends. If yous produce that amongst amend information , yous volition accept gotten the message.
Data are from the St. Louis Fed's wonderful Fred database , serial GDPC96 , GDPPOT , EMRATIO.
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