On September 20, the NBER’s Business Cycle Dating Committee announced that the end of the Great Recession occurred in June 2009 (announcement here). This lag of about three months is reasonably fast as NBER announcements go – the goal is to be right not fast. The Great Recession began in December 2007 and so lasted 18 months, making it the longest in the post-war period. Why does the NBER get to date business cycles? Because they did it first. Burns, Mitchell, and Kuznets developed the methods to measure macroeconomic performance, measured macroeconomic performance, and defined business cycles. How does the NBER dates cycles? Read FAQs here and the procedure here. A complete list of cycles is here. Of note, the Great Depression was really two recession and a lot of sluggish growth.
Archive for the ‘recession’ Category
The warning tremors that might presage a major US fiscal crisis began today. A major credit rating agency, Moody’s, wrote of the current US fiscal projections: “If such a trajectory were to materialize, there would at some point be downward pressure on the triple A rating of the federal government.”
The first Obama Economic Report of the President has just been released and is available on-line. The focus of the Report is the “great recession” and the various policies designed to avoid depression. This focus if quite different from the usual ‘first report’ of a Presidency. In general, ERPs have a pretty standard format: a chapter on the state of the economy (“problems due to my predecessor, but the outlook is good”), followed by chapters devoted to explaining in different areas the good economics that lie behind the Administration’s policy proposals and new programs. These areas, rather than the economic arguments, tell you whether it is written by a Democrat or Republican. For example, Republican Administrations talk about the importance of capital accumulation and innovation for growth and push tax credits for business investment and R&D credits, while Democratic Administrations push investments in human capital and accessibility of education. The economics in either case are (generally) solid, and the disagreements are really ones of degree (which is why Krugman, Mankiw, Cochrane, Romer, Bernanke etc. could all get along well in academe and discuss and praise each others’ academic work). First ERP’s tend to lay out agendas and final ERP’s (one of which I helped to write when I was much younger), justify and rationalize and try to declare victory (“my” Reagan report was full of statements about the longest peacetime expansion and said very little about the deepest post-War recession). In any case, this report breaks these trends. It is significantly backward looking, discussing the crisis, recession, and policies to combat, focusing on ERRA 2009, but also discussing many of these policies pre-date the Administration. But very interesting reading.
As an aside, if there is a place where Obama has been amazingly apolitical and “crossed the aisle,” it is in the crisis response; the Administration could have relabeled programs and taken pot shots at the previous Administration’s efforts (think Bush on national security post-9/11 trying to shift the blame to Clinton). Of course, the ERP and the rhetoric in general spins the crisis/recession as evidence for the solutions that the Administration thinks are the right ones. But arguing for better policies in the future (right or wrong) is constructive where the blame game is destructive. This shows up in the ERP, in many places like:
On October 3, Congress passed and President Bush signed the Emergency Economic Stabilization Act of 2008. This Act provided up to $700 billion for the Troubled Asset Relief Program (TARP) for the purchase of distressed assets and for capital injections into financial institutions, . . . [It] was used mainly to purchase preferred equity shares in financial institutions, thereby providing the institutions with more capital to help them withstand the crisis.
Failure of the two troubled domestic automakers (GM and Chrysler) threatened economy-wide repercussions that would have been magnified by related problems at the automakers’ associated financial institutions (GMAC and Chrysler Financial). To avoid these consequences, the Bush Administration set up the Auto Industry Financing Program within the TARP.
That said, Obama will try to get re-elected and not every voter ignores mud and appreciates economic argument.
The State of California’s tax revenues fall far short of its spending and the legislature and governor are unable to close the gap, due in part to the large number of constitutionally-imposed constraints and in part to all the usual hurdles to forging agreement among a diverse group of human being (hereis the NY Times article). So the State is planning to start issuing i.o.u.’s to pay its creditors. Further, these i.o.u.’s may pay interest (they did in 1992). How should we think of and value these new assets? (more…)
Recent commentators have suggested that house prices have a ways yet to fall, and that these further declines will lead to a further collapse in US output, potentially lengthening and deepening an already severe global downturn. But while this US recession was kicked off by the sub-prime crisis, even the large declines in housing wealth that we have seen are not enough by themselves to explain the severity of the current downturn. Let me explain why.
First, my comments are prompted by the following somewhat alarming figure (via Chad Jones):
A host of commentators are arguing that the current U.S. slowdown – the most severe in a quarter century – is far from over and in fact destined to get much worse. The argument usually invokes a parallel with the Japanese recession of 1990. In Japan in 1990, real estate prices fell sharply after rapid increases over the previous decade, the stock market fell dramatically, and most large banks became either insolvent or very short on capital – all similar to what the US has experienced. And Japan subsequently went through a great-depression style slowdown in economic growth from which they have still not fully recovered. (more…)
The Chinese economy is slowing rapidly. The latest estimates show declines of several percent in official Chinese growth rates, which might be indicative of an actual recession. The Chinese government, like many around the world, is responding with a large economic stimulus plan. Official estimates are that the plan will cost roughly 14 percent of one year of China’s GDP, or well more than double the relative size of the proposed plan in the U.S. While some of the proposed stimulus spending may be worth doing anyway, the idea of a stimulus plan is to spend and build more than is worth doing in an economic slowdown. In the rush to stimulate the economy, there will surely be some waste and investments undertaken that in retrospect may be worthless.