The Numbers Game with Russ Roberts -- The Economic Recovery (Part 2)
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By historical standards, the current recovery from the recession that began in 2007 has been disappointing. As John Taylor of Stanford University's Hoover Institution and the Department of Economics argues in Part 1 of this discussion on the economy, GDP has not returned to trend, the percent of the population that is working is flat rather than rising, and growth rates are below their usual levels after such a deep slump. In this episode, Taylor and Number's Game host Russ Roberts discuss possible explanations for the sluggish recovery: the ongoing slump in construction employment, the effect of housing prices on saving and spending decisions by households, and this recovery's having been preceded by a financial crisis. Taylor rejects these arguments, arguing instead that the sluggish recovery can be explained by poor economic policy decisions made by the Bush and the Obama administrations. 1) On the argument that there are structural problems in the labor market (0:25) 2) Comparisons to the 1981 recession (2:16) 3) Is this recession special because it followed a financial crisis? (2:46) 4) What can the Great Depression tell us? (3:55) 5) Why is the current recovery so mediocre? (5:32) LINKS TO DATA & PAPERS REFERENCED - 1. Construction Sector Employment Chart: Bureau of Labor Statistics- Series CES2000000001, Seasonally Adjusted 2. S&P/Case-Shiller Home Price Indices Chart: S&P Dow Jones Indices and Fiserv 9-25-12 - http://www.standardandpoors.com 3. Personal Saving as a % of Disposable Income Chart: BEA NIPA Table 2.1 line 36 4. 2008-09 and 1981-1982 Recession & Recovery Charts: Real GDP (GDPC1) downloaded from FRED 7/13/12, taken from BEA.gov - http://research.stlouisfed.org/fred2/series/GDPC1/ Potential GDP (GDPPOT) downloaded from FRED 7/13/12, taken from CBO.gov - http://research.stlouisfed.org/fred2/series/GDPPOT/ 5. 'Deep Recessions, Fast Recoveries, and Financial Crises: Evidence from the American Record' by Michael D. Bordo and Joseph G. Haubrich - http://media.hoover.org/sites/default/files/documents/Bordo-Haubrich-Steep-Paper-SNB%209_7.pdf 6. 1893-94 and 1907-08 Recession & Recovery Charts: GDP data from NBER, compiled by Nathan Balke and Robert Gordon with adjustments by John Taylor for comparability with earlier charts - http://www.nber.org/data/abc/. Potential GDP calculations by John Taylor using a Hodrick-Prescott trend. 7. 1933-36 Great Depression & Recovery Chart: GDP data from NBER, compiled originally by Nathan Balke and Robert Gordon - http://www.nber.org/data/abc/. 8. 1929-1940 Unemployment Rate (% of Labor Force) Chart: Historical Statistics of the United States (Millennial Edition) - Table Ba470-477: Labor Force, Employment, and Unemployment, 1890-1990 - http://hsus.cambridge.org/HSUSWeb/toc/showTable.do?id=Ba340-651 9. 'An Empirical Analysis of the Revival of Fiscal Activism in the 2000s' by John B. Taylor - http://www.stanford.edu/~johntayl/JEL_Taylor_Final%20Pages.pdf Click the following link to view "The Economic Recovery (Part 1)" http://www.youtube.com/watch?v=1eCYq2vD5GY
Comments
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The first time home buyer tax credit was so obviously doomed to fail. I think the lower rates of savings could be do to the unemployment per house hold (amount of burden being shouldered), fear of inflation (if your savings is going to be inflated away, why save?), banks unwilling to issue small business loans (having to use your savings). Wonder if there's any sort of credit trauma taken into account. If you get foreclosed on you're living paycheck to paycheck with no credit.
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I believe the the saving rate is calculated considering debt pay down. Also, much of the debt payoff is through default and foreclosure, not from healthy job market and correcting forces to the positive.
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I agree. Not spending does not necessarily imply savings, it could be debt repayment.
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What happened to part 3?
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R&R use a larger pool, R&R dont include the CLEARLY different 1980's recession. Their methodology is much better
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There are many people who will not choose to become a patient of a particular doctor precisely because they lack confidence in him or her. So confidence IS a powerful determinant of economic behavior.
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Mr. Taylor defines deleveraging as "households restoring their balance sheet where you would expect to see them saving more than normal." In my household we deleverage by paying down debt, not accumulating more assets. I think paying-down-debt is the more-typical approach for "deleveraging". So when we pay down debt, we don't spend as much AND our savings rates are low. Thus deleveraging still stands as a significant (probably the most-significant)cause of decreased demand in this economy
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The reason savings are lower then previous recessions is interest rates are at an all time low. In the 80s recession, like most that preceded it, the Fed raised rates during the recovery to slow inflation down. This time inflation never reached previous levels, and there was a bigger fear of a double dip if consumer spending lowered so the Fed lowered interest rates. As a result, consumers haven't been saving.but spending. its now a lose-lose as if we start saving, we will double dip.
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I believe in the confidence fairy. So did Keynes. His phrase was "animal spirits." The question remains as to what destroys confidence and what brings it back. That, we economists, do not understand so well. But uncertainty certainly has something to do with it.
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It's really not sufficient to reject several arguments only to propose another explanation without support. Hopefully the third part to this will provide substance.
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Can you link to R&R's response?
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The Confidence fairy makes an appearance.....
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I don't understand how Taylor doesn't acknowledge deleveraging as a main contributor to slow growth and weak AD. Right now, consumers are paying back debts accumulated and accounted for during previous years. This is money not spent on good and services, and these payments - aside from interest - do not contribute to GDP. This is a vicious cycle.
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link?
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I'm curious what the data looks like when comparing the rate of change from peak unemployment during the depression to the 2008 recession. That is if you compared peak unemployment to unemployment some time later (say two or three years) as percentage of peak unemployment, which recovery faired better? Comparing this to the timeline of new policy implementations could shed light on the accuracy of the "bad policy theory" of prolonged economic recovery.
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Garbage video. Check Bloomberg for R&R's response. Stop putting politics first!
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Not that I'm against experimentation, but there is a pause button. I use it frequently.
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The economy turned on a dime in 1933... isnt that when they outlawed gold? Looks like the economy was held hostage until they get what they wanted.
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Interesting idea. We might try that. Thanks for the suggestion.
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Russ, You wanted comments on the graphics. Quite an improvement. It allows you to make something clear after the interview. Much needed. But sometimes we need to think about what you "added". Suggestion: add silent space in the audio, between sentences. Pauses are not distracting; the listener won't know they were inserted. But it will allow the listener to mull over what was just said.
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