Anatomy of a Recovery: DeLong Smack Down of John Cassidy
Brad DeLong has a problem with the following from John Cassidy:
By the middle of 2002, however, it was clear that for whatever reason – low interest rates, the Bush tax cuts, increased military spending – the economy was staging an amazingly robust recovery. At that point, history and economic orthodoxy suggested that the Fed should have been tightening policy rather than loosening it.
Brad provides a compelling case for his claim that Cassidy is all wet:
Actually, it was not clear at all by the middle of 2002 that the economy was staging an “amazingly robust recovery.” The recovery did not become anything anybody could call “robust” in any sense until 2004. Want evidence that it was not clear in mid-2002 that the recovery was “robust”?
Here in the latter part of 2007, we can look back on the period from 2001 to today in terms of the employment to population ratio as well as real GDP growth rates by quarter. Real GDP growth (annualized) was only 2.5% for the first three quarters of 2002, which was followed by almost no growth during the last quarter of 2002 and very little growth for the first quarter of 2003. The employment to population ratio, which had dropped from 64.4% as of January 2001 to 62.7% as of April 2002, seemed to have stabilized at that level through September 2002, but then it started its second downward march bottoming out at 62.0% in September 2003.
I had always thought that the recovery did not get going until after we geared up for that disaster known as the Iraq War. Mr. Cassidy chastised Alan Greenspan for not understanding that “the economy was staging an amazingly robust recovery”. But the data shows that there was not a robust recovery until a full year later. So we should thank the Federal Reserve for not raising interest rates sooner. As far as Mr. Cassidy, what can you say about a person too stupid to look at the simple facts displayed by our graphs?