# Growth, the Fed, and Presidents

This post is quick and dirty… I’m in a hurry and don’t have time to give it adequate time. I want to look at the change in real GDP per capita and how its related to the Fed’s behavior.

First, a look at the annual percentage change in real GDP per capita.

(Data on real GDP per capita comes from the BEA’s NIPA table 7.1.) What this shows is that earlier in the sample, growth rates could be higher, but there was more, well, bounciness in the data.

This next graph overlays the annual percentage change in real M2 per capita.

(M2 is available from the Fed, and I picked figures for January of each year for this graph. Sadly, the data is not avilable going back to 1953. I also used population figures for Q1 of the year from BEA NIPA table 7.1, and derived inflation from the CPI.

The graph kinda looks like the series move together. But does one lead the other? Yes? No? And if so, which?

But let’s be a bit more precise. I computed the real M2 per capita for each quarter since the data became available – for Q1 figures, I used March, for Q2 I used June, etc. The table below shows two sets of correlations – between quarterly real M2 per capita and quarterly real GDP per capita, and between the percentage change in quarter to quarter quarterly real M2 per capita and the percentage change from quarter to quarter in quarterly real GDP per capita…

What does this show? Well…
1. The correlation between real GDP per capita and real M2 per capita is pretty high at 90%.
2. If either series leads, it seems real M2 per capita leads real GDP per capita, and by two quarters. (Look at the correlation of the growth rate of the two series.. the highest correlation is between the % change in real M2 per capita lagged by two quarters and the % change in real GDP per capita.)

Put another way… the Fed moves first, real GDP follows. Now perhaps the Fed is reacting to leading indicators… but how leading? By 6 months? Seriously?

So… we clearly, the Fed’s actions help move the economy.

Now a final question… which Presidents have been helped by the Fed, and which have been harmed by the Fed? The table below shows the annualized percentage change in real M2 per capita over the terms of each President going back to 1960.

(Note… the original version of this table had erroneous figures for JFK/LBJ, making real M2 per capita look higher for them. Apologies.)

Basically, if the Fed is a cheerleader, its on the side of the Reps. GHW got hosed, but he’s the only one who did among the Reps. JFK/LBJ got a boost from the Fed, but they’re the only ones who did among Dems. All in all, Reps were the beneficiaries of Fed actions… Dems not so much. Which makes it even more puzzling why growth rates tended to be higher among Dems than Reps. Policy anyone?

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Massive correction!!!! I entered the wrong data into the last graph. Results were way off. Correct now!!! (I realized as I was headed out the door that the data didn’t match what I had seen when I did this kind of thing before. Apologies.

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Additional note… the annualized percentage change in real M2 per capita is based on January to January figures.

Another thought… why did GHW get such short shrift from Uncle Alan? A few ideas… maybe if real MS per cap continued to increase at the same rate as under Reagan (i.e., it was overdone on Reagan), it would eventually translate to inflation, or maybe because GHW wasn’t a believer, what with the whole “Voodoo Economics” thing. Probably a combination of the two. But it does indicate that perhaps whoever follows GW might be in a bit of trouble.

Also, to be crude, it seems to me that Clinton wasn’t the only to get, well, Lewinsky-ed in the Oval Office. Its just that GW and Reagan got their Lewinsky from Alan Greenspan.