Re: it's over!
Would we be out of the recession without the Boskin inflation adjustments? -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: it's over! - indexation
The Boskin Commission found that the CPI is overstated by as little as .6% and as much as 1.5%, from what I can figure out, the upward bias being probably in the range of 0.65 percent, down from 1.1 percent for the 1995-6 period.. I haven't read Robert Gordon's paper though, and the percentage error margins cited aren't very meaningful unless you can review the whole methodology (classifications, questionnaires, estimation procedures, consumer patterns, and regimen). Robert Gordon discovered that when workers net real incomes decline they go and shop at cheaper stores, and on the other hand, that if supermarket chain monopolies develop, this may also be a factor in the choice of store. Congress decided not to change the CPI methodology. In Western Europe, accelerating price inflation combined with changing consumption patterns during the long postwar boom led some trade union federations to produce alternative indexes of price inflation. In general, you could say that statisticians tend to distrust large fluctuations in a data distribution, particularly if they are unprecedented or do not conform to an already existing pattern in the data. The effect of retrospective revisions has a higher likelihood of smoothing out data series. http://www.raleightavern.org/wilson.htm http://www.moaa.org/Legislative/Retirement/CPI.asp On quality adjustment, see http://www.boj.or.jp/en/ronbun/01/cwp01e06.htm J. - Original Message - From: Michael Perelman [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Sunday, July 20, 2003 1:12 AM Subject: Re: [PEN-L] it's over! Would we be out of the recession without the Boskin inflation adjustments? -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: it's over! - indexation
The Concord coalition has some useful articles on overstatement and understatement, see e.g. http://www.concordcoalition.org/entitlements/cpi0598.html
it's over!
NBER: U.S. Recession Ended in November 2001 Thursday, July 17, 2003 11:08 AM ET Dow Jones Newswires NEW YORK -- The U.S. economy officially ended the recession it entered into in March 2001 in November of the same year, a group responsible for dating changes in the business cycle said Thursday. The National Bureau of Economic Research said that the recession lasted eight months, which is slightly less than average for recessions since World War II. The NBER is officially responsible for dating changes in the U.S. business cycle. While the group has long cautioned that it takes a considerable amount of time to officially date the end of a recession, its decision had been long expected. The committee waited to make the determination ... until it was confident that any future downturn in the economy would be considered a new recession and not a continuation of the recession that began in March 2001, the group said in a press release. The criteria used by the NBER for dating recessions differ from the common market shorthand, which defines a recession as two consecutive quarters of contraction in gross domestic product. The group, which has served as the official scorekeeper of economic activity for decades, instead looks at changes in employment, real income, industrial production, and wholesale-retail sales that are normally visible in real GDP. It seeks to determine peaks and troughs in activity in these sectors as the key determining factors of whether the economy is in an expansionary or recessionary phase. The behavior of these series strongly suggests that the trough occurred in late 2001, the NBER noted. The NBER's call on the 2001 recession means that a renewed downturn would represent a fresh recession, rather than the much-talked-about double dip. And the NBER was quick to note that just because the 2001 recession had ended, it wasn't saying the economy had entered into a period of strong growth. In determining that a trough occurred in November 2001, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity, the group said in a press release. Rather, the committee determined only that the recession ended and a recovery began in that month, the group said. The group acknowledged that one its main barometers, employment, has remained problematic, even as real GDP has risen substantially since November 2001. Indeed, since the end of the recession, unemployment has risen from 5.6% to 6.4% as of June 2003. The NBER defines expansions and recession in terms of whether aggregate economic activity is rising or falling and that is what drives the ultimate determination, the group said. The NBER's official all clear on the economy comes amid rising optimism that after a long period in the wilderness, the U.S. economy is finally poised for a more enduring economic recovery. The group's report also follows testimony by Federal Reserve Chairman Alan Greenspan earlier this week which signaled the central bank's expectation that economic growth, which has muddled onward since the official end of the recession, should now begin to accelerate. In the Fed's updated forecasts for growth that were provided to Congress, it said that real GDP growth for the current year is seen ranging between 2.25% and 2.75%, accelerating to between 3.75% and 4.75% next year. Mr. Greenspan also said that the Fed would continue to keep interest rates low for as long as it took to get the economy back on track. The Fed has cut interest rates 13 times since Jan. 3, 2001, lowering the funds rate target from 6.5% to a 45-year low of 1% as of the late June meeting, as it has fought to stimulate growth levels. The Fed's current concern is that already weak price pressures will grow even softer and put the economy at risk of a deflationary price spiral. While it sees the possibility that there will be broad-based decline in prices as remote, it nevertheless is letting that concern drive policy. -Michael S. Derby, Dow Jones Newswires; 201-938-4192; michael.derby@ dowjones.com [though the bourgeois recession may have ended in November 2001, the proletarian recession continues as unemployment still rises.] Jim Devine Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine
Re: it's over!
Ketchup is a vegetable. -- Michael Perelman Economics Department California State University Chico, CA 95929 Tel. 530-898-5321 E-Mail [EMAIL PROTECTED]
Re: it's over!
From: Michael Perelman [mailto:[EMAIL PROTECTED] Ketchup is a vegetable. I understand why you reject the semi-official NBER's declaration that the US recession is over. But that's because you have a different definition. Frankly, I think the NBER's definition is worthwhile (in context), since it says the fall in real GDP ended in Nov. 2001. But that doesn't say that recovery began in Dec. 2001, since the GDP growth has been quite anemic. It's interesting that the NBER waited so long to declare the recession's end because of this... In any event, people have to realize that even though the recession may be over, the economy can be (and is) in miserable shape. In the old NBER literature, I'm pretty sure that they used to call this phase of the business cycle by the now politically-incorrect name stagnation. Further, we need to distinguish the NBER's bourgeois definition of recession (falling real GDP) from a proletarian one (rising unemployment, falling employment). By the latter definition, the recession is hardly over. Alas, as long as we have capitalism, the bourgeois definition of recession will be relevant, since the capitalists control the lion's share of the supply of jobs, upon which working people depend for their livelihood. GDP growth is one measure of capitalist health and helps determines the supply of jobs (even as it misses working-class health and environmental health and ...) Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine
Re: it's over!
Devine, James wrote: Further, we need to distinguish the NBER's bourgeois definition of recession (falling real GDP) from a proletarian one (rising unemployment, falling employment). By the latter definition, the recession is hardly over. In most post-WW II U.S. bizcycles, employment bottomed the month of the recession trough +/- a month or two. The last two cycles have been unusual in that employment continued to fall after the official trough. I think that's post-bubble behavior. Doug
Re: it's over!
I wrote: Further, we need to distinguish the NBER's bourgeois definition of recession (falling real GDP) from a proletarian one (rising unemployment, falling employment). By the latter definition, the recession is hardly over. Doug: In most post-WW II U.S. bizcycles, employment bottomed the month of the recession trough +/- a month or two. The last two cycles have been unusual in that employment continued to fall after the official trough. I think that's post-bubble behavior. Back in the 1950s and 1960s, the short-term interests of the US working class was more in line with that of the capitalists, as seen in these kinds of stats. But since the 1970s, there's been a widening gap between these two, as the political economy of US growth has become less and less focused on autocentric (national) accumulation and more international and as the welfare state has shrunk or been decentralized to the states. Neo-liberalism replaced New Deal liberalism. By the 1990s, the federal government was no longer a growth center (and instead was actually encouraging recession with budget surpluses) so that profit- and stock-market-led private-sector demand led the economy in the Clinton boom.[*] This was the bubble economy and now we're in post-bubble phase, as Doug points out, with the recession being more like those of the pre-WW2 period. The early-1990s recession was a mixture of the early post-WW2 kind of recession and the new, as befits a transition period. Just because there's a larger deviation between the short-term interests of the working class and those of the capitalists these days doesn't mean that the workers are about to unite to overthrow the system. These kinds of things can easily go right-wing, as with the militia movement of the early 1990s. Working-class alienation and resentment might also be channelled into pro-war sentiment... [*] BTW, I'm reading Bob Pollin's CONTOURS OF DESCENT on this kind of stuff. It's excellent, though it won't be available to most people until later this year... Jim
Re: it's over!
Devine, James wrote: But since the 1970s, there's been a widening gap between these two, as the political economy of US growth has become less and less focused on autocentric (national) accumulation and more international and as the welfare state has shrunk or been decentralized to the states. Neo-liberalism replaced New Deal liberalism. A period that added over 20 million jobs, and, starting in 1995, saw a reversal of the long real wage decline. How'd that happen, in your model? Doug
It's over !
I thought that a recession was a reduction in real GDP growth and a depression or slump negative real growth. As far as I know, real GDP growth without employment growth is not new, this happened as well in some years in the 1980s or 1990s. Personally, I consider the discussion petty useless unless I know what specific sectors produced real GDP growth, and attributable to which components of GDP. It may be that some sectors are shrinking and some sectors growing, some growing more strongly and other weakly and so on. When I researched this in New Zealand for the period 1971-1988, I found for example that fluctuating inventory levels (nowadays adjusted for price changes during the year, hence the notion of the physical increase in stocks) and increases in the incomes of the FIRE sector made a big contribution to growth. From memory, in some years, real production stayed constant or fell in most sectors, but the financial sector bubbled, so real GDP was rising anyhow although real production fell. In other words, an increase in real GDP means nothing much of itself, you have to know what the increase is attributable to. When I worked as statistician, staff decided at a certain point that the way they had calculated quarterly real GDP changes previously was costly and led to unreliable results (the figures had to be revised retrospectively as new data came to hand), so they built a mathematical model to infer changes in quarterly real GDP from various sample survey indicators. J.
Re: It's over !
I thought that a recession was a reduction in real GDP growth and a depression or slump negative real growth. I think the IMF uses a reduction in real GDP growth to defined a world recession, but in the US, it's a reduction of real GDP _level_ for two quarters that is used (to summarize the NBER's more complicated definition). In the US, there's no official definition of depression, while slump is often used as a synonym of recession. As far as I know, real GDP growth without employment growth is not new, this happened as well in some years in the 1980s or 1990s. During the Bush-I years, we had a jobless recovery, which we're seeing again under Bush-II, except that the recovery is pretty anemic outside the housing sector. It's a logical implication of Okun's law which says that real GDP has to increase about 2 1/2 to 3 percent per year to keep unemployment from rising. This is partly due to the normal increase in labor productivity and partly due to the normal increase of the labor force over time. Jim
Re: It's over !
Jurriaan Bendien wrote: I thought that a recession was a reduction in real GDP growth and a depression or slump negative real growth. At least in the U.S. _depression_ is very nearly a proper noun, The Depression of the 1930s. Carrol
Re: It's over !
Is that like a mid-life crisis ? :) J. - Original Message - From: Carrol Cox [EMAIL PROTECTED] To: [EMAIL PROTECTED] Sent: Thursday, July 17, 2003 11:45 PM Subject: Re: [PEN-L] It's over ! Jurriaan Bendien wrote: I thought that a recession was a reduction in real GDP growth and a depression or slump negative real growth. At least in the U.S. _depression_ is very nearly a proper noun, The Depression of the 1930s. Carrol
Re: It's over !
some historians also talk about a depression of the late 19th century. Wallace Peterson, an economist wrote of a silent depression of the last 30 years or so (in a book of the same name) ... Some have developed theories of long waves which are punctuated by depressions... Jim Devine [EMAIL PROTECTED] http://bellarmine.lmu.edu/~jdevine -Original Message- From: Carrol Cox [mailto:[EMAIL PROTECTED] Sent: Thursday, July 17, 2003 2:46 PM To: [EMAIL PROTECTED] Subject: Re: [PEN-L] It's over ! Jurriaan Bendien wrote: I thought that a recession was a reduction in real GDP growth and a depression or slump negative real growth. At least in the U.S. _depression_ is very nearly a proper noun, The Depression of the 1930s. Carrol
AD: it ain't over 'til it's over
Recent exchanges on the AD curve have helped to clarify issues further, and I am moving ever closer to rejecting the whole apparatus. Yet I am not quite to that point, and -- at the risk of boring most PENners -- I would like to appeal to those who are still interested in this question to pursue the exchanges just a bit longer. Peter Dorman's argument that we can't expect exchange rates to adjust to balance the current account seems to me unassailable; there are too many factors (other than exports and imports) which affect the demand for and supply of foreign currency. To the extent that comparative advantage theory depends on the equilibration of exports and imports, it is simply not valid. But I am not yet convinced by Peter's claim that there is no meaningful "international substitution effect," i.e., that a change in the domestic price level will not have an effect (with the opposite sign) on net foreign demand for domestic products, thus contributing to a downward slope in the AD curve. He argues that a change in the domestic price level (let's say an increase in the US GDP deflator P, to make the argument more concrete) should be expected to induce an offsetting movement in the exchange rate (i.e., a fall in the value of the dollar V), so that there is no change in the relative prices of US and foreign goods and hence no change in the net foreign demand for US products. Others have responded that so many factors buffet exchange rates that one shouldn't expect a precise offsetting movement in the exchange rate along the above lines. But, as Peter points out, the addition of noise -- as long as it is superimposed on the offsetting movement that Peter is discussing -- does not invalidate his argument. Only a logical connection between the increase of P and the failure of V to fall would constitute a strike against his home team. It does seem to me, however, that there may be such a logical connection, as follows. An increase in P -- by increasing money demand -- will lead to an increase in domestic interest rates (assuming, reasonably, that the outward shift of the money demand curve will not be fully offset by an outward shift of the money supply curve). The increase in domestic interest rates will increase the demand for US assets relative to foreign assets. This latter shift will push up the demand for dollars relative to foreign currencies, causing an *upward* movement in V. This upward movement will systematically interfere with the offsetting adjustment process on which Peter 's argument relies. The new equilibrium toward which the domestic economy will tend is one of higher P relative to foreign prices (not fully offset by a decline in V), higher interest rates relative to foreign rates, higher net capital inflow on capital account and lower net exports on current account. In other word, an international substitution effect. For there not to be an international substitution effect, the final equilibrium would have to be one in which no international interest rate differential resulted from the initial increase in domestic P. Is that possible without an increase in domestic M in the same proportion as the increase in P? I don't think one can appeal here to the difference between real and nominal interest rates, since prices change only temporarily -- with the initial increase in P and possibly with the subsequent transition from disequilibrium to a new equilibrium. Perhaps my scenario does not survive conversion to an analytical framework dealing with rates of change rather than levels, but I would like to see this demonstrated. In particular, such conversion would have to address the question of what should be assumed about the money supply in a dynamic framework. This said, I do accept Peter's points about international shocks and the J-curve. If the source of the increase in domestic P is international rather than national, then it should affect prices in all countries; my point applies only to price shocks that disproportionately affect the country in question. And the J- curve argument is surely valid: the negative effect of a rise in P on net foreign demand for domestic products (and of course also the positive effect on net capital inflows) will take some time to be felt, and the initial effect is likely to be in the opposite direction. I'm not sure where Peter's estimate of 6 quarters comes from, but I do concede that the analysis must be stretched over at least a year before it becomes compelling. Is this really an unreasonable stretch for such analysis?. Dialectically, Tom Weisskopf
