Real GDP in recoveries
In all the discussions of the real GDP release I did not see this comparison, and I thought it should be made. So far real GDP has increased 2.7% as compared to an average of 4.3% in recoveries since 1950. The range is from a high of 6.8% in 1958 to a low of 1.5% in 1991.
Someone in comments asked for a comparison to the preceding recession.
P.S. If anyone knows how to shift the dates on a bar chart with negative values down to the bottom of the chart please use the comments to explain how.
This is pretty anemic for growth in an alleged recovery.
Some context: Year over year GDP growth has been irregularly but clearly trending down since about 1980. The net result of Reagonomics and supply side tax cuts has been a long-term decline in the activity and robustness of the economy.
But nobody EVER talks about it.
Sigh,
JzB
If you try to point it out the right tells you that the better growth in the pre-1980 era is due to the lack of foreign competition in the aftermath of WW II. But this argument ignores the fact that growth in the 1950s was subpar because of tight monetary policy and three recession to wring the war time — including Korea — inflation out of the system. The best growth was in the 1960s –after Europe and Japan had recovered from WW II and international capital flows were freed. Growth in the 1970s was almost identical to growth in the 1980s.
The more sophisticated argument is that the strong growth in the 1960s and 1970s caused the inflation of the 1970s and the harm from inflation more than offset the benefits of stronger growth. Of course this depends on your position in society. If your income stems from returns to capital, inflation does hurt your more. But in the 1969s and 1970s if your income was from labor the inflation of that era actually helped you. Inflation has numerous consequences, and one of them is income redistribution.
Note how disinflation has been accompanied by increased income inequality since 1980.
Aha! Points about inflation and disinflation that I never considered.
Thanx!
JzB
Thanks you JzB. Exactly right.
Though to be fair it could be a secular decline with other causes.
But we can certainly say this: a thirty-year experiment in Reaganomics has given us no evidence that it delivers more prosperity than progressive policies do.
Interesting that the last three recessions had the slowest post-recession growth.
Are we seeing the equivalent to the apparently structural, secular change we’ve seen in post-recession employment since ’82?
Not just jobless recoveries, but … recovery-less recoveries?
I do totally attribute these things to 30 years of misguided economic policies — misguided, of course, in the context of larger movements like globalization, the rise of China and India, etc.
If my memory is correct, people were told how harmful inflation was for working people and inflation was caused by high wage increases. The PR (propaganda) is still hanging on when people still say the UAWU CAUSED the problems in the the auto industry.
Thinking more on my last comment:
’82 is different from the other recents because in ’82 employment came back slowly, but GDP roared back.
Three things re ’82:
1. Caused by Volcker’s tightening.
2. Very deep recession.
3. Came back fast because of #2, and because the recovery was a result of Volcker’s loosening.
If you have the numbers handy, be interested to see for all the recessions, vis a vis #2:
(Three-quarter recovery / Total decline during recession)
well, i was always told
that the inflation was caused by johnson’s war which he didn’t pay for. but it’s beginning to sound like inflation can be caused by anything you don’t like. back then even Paul Samuelson thought inflation was caused by not enough people out of work. Subsequently it has turned out that was not true, but the concept is still lying around waiting to be brought out again when it is convenient.
Question
does people selling pieces of paper to each other count as GDP?
how about people suing each other?
or the lady who has to put her kid in daycare to get a job at minimum wage because she needs the cash to buy groceries.
note, i am not even talking here about the people who do have jobs buying big cars . that ought to run up the GDP without necessarily doing anything for the people out of work.
don’t want to go too far with this, because i don’t know much. and “GDP is not a perfect measure” is not the answer i am looking for.
This has nothing to do with Reaganomics. The 1991 recession was shallow compared to the 1982, 1980, and 1974-1975 recessions, so the shallower the recession the less robust the recovery. In 2001 there wasn’t technically (two consecutive quarters of GDP) even a recession. There was a -1.3% quarter in Q1 2001 and a -1.1% quarter in Q3 2001. How can there be a robust recovery from such a moderate decline of GDP. Note that the result “Reaganomics” (whatever that’s supposed to mean) was to have a 25 year boom period from 1982-Dec 2007 with only one minor recession in the early 90s and a slow down after the tech bubble to hold it back. That is impressive.
I make a comment about the long term, and you come back with recoveries out of recessions, an entirely different degree of trend.
If you think 1982 to 2007 was a boom period, you have not looked at GDP growth, the percentage of the population in poverty, or the non-existant progress of the middle class. A stock market boom is not an economic boom. But you’re right about one thing — three decades of wealth redistribution form the poorest to the richest is impressive, indeed!
BTW, Reaganomics means reducing taxation on the wealthy, evidently motivated by a beief in the fantasy of trickle-down, and the elimination of regulations, which capitalism desperately needs o keep its wheels from falling off.
So, yeah – it has EVERYTHING to do with Reaganomics.
Cheers!
JzB
REAL gdp is still lower than the peak set in the 2nd qtr 2008. So you think that by not erasing inflation (NOMINAL gdp), things are all better now???? Metrics matter. I just bought 40 envelopes for a dollar that a couple of months ago got 50. Do you think Mead hired more peope to do it??? Hell no..
Remembering Reagonomics by Dr. Leland James Pritchard, Ph.D. Economics, Chicago 1933:
The basic idea of supply side economics is to create an economic milieu that will foster increased production of higher quality goods and services which can be marketed at competitive prices. To achieve these objectives we need to reduce monopolistic elements in the price structure (monopolistic prices of goods or services tends to increase prices and restrict output); increase labor productivity; reduce unit labor costs; reduce transfer payments to the non-productive sectors; eliminate excess regulatory burdens, excessive rates of taxation on producers and savers, etc.
The caveat is that supply side economics requires structural and attitudinal changes which will be zealously resisted by powerful special interest groups. Even more intractable are constraints imposed by resource and technological factors. Gains will be limited and a long time in coming even with our best efforts. Up until now we have ameliorated these unnecessary self-imposed economic hardships largely through massive transfer payments to non-productive recipients. Deficit financing by the Federal Government provided the principal source of funds. Al we all should know, there is a finite limit to this “remedy”.
Supply-side economics, as applied to the deficit, assumes that if enough tangible financial encouragement is given to the business community and investors, then plant expansion, production, employment and taxable incomes will increase sufficiently to enable the economy to “grow out of the deficit”. All of this, the supply-siders contend, it possible without burdening ourselves with higher taxes or endangering our national security through “real” reductions in the federal budget.
Methods already adopted to achieve these supply-side objectives include: 1) sharply lower corporate income taxes; 2) more generous treatment of capital gains; 3) tax credits for capital outlays; 4) tax deductions for certain types of investments: 5) accelerated depreciation on plant and equipment and rental housing; 6) removal of costly (and presumably unnecessary) government regulations, etc.
However, further tax incentives, especially to corporations, are likely to be counterproductive. That is, the adverse effects on the deficit and interest rates will more than offset the simulative effects on the economy. Many corporations, including some of the largest, pay little or no income taxes. A past survey of 250 of the Fortune 500 found these 250 paying net corporate income taxes at an average annual rate under 15 percent. Very few were paying anything close to the 46 percent maximum rate.
There is one all-important ingredient that the supply-siders ignore; namely that the demand for capital goods is a derived demand, derived from primary consumer demands. That even in a capitalistic system the end and objective of all production is human consumption. The demand for inventory or plant and equipment, however far removed from the ultimate consumer, is derived from final consumer outlays in the marketplace.
Demand is always paramount in successful business planning and commitment decisions. If sufficient demand is not expected to exist, it matters not what the expected costs will be. “Sufficient” demand, of course, covers all costs plus and expected after tax profit margin.
Supply-siders approach the demand side of the equation on a “trickle down” basis; build the plants and […]
Lamont,
If the stated goal of supply-side policies was to moderate swings in the economy, regardless of the impact on the overall pace of gorwth, then there would be reason to reach the conclusion you have reached. Supply-side policies were sold as a way to boost growth. Not only were recoveries slower in the period since Reagan took office, but average growth has also been slower. Now, if a set of policies is meant to deliver stronger growth, but only manages to deliver smaller recessions at the cost of slower average growth, well that’s not so great for bragging rights.
coberly —
people selling pices of paper to each other — brokerage commissions count in GDP and something similiar would count for other paper transactions.
lawyers suing — the concept is similar, the lawyers fees count but the transfer of money from one litigant to another does not count
woman working adds to gdp but if she were taking care of her own child it does not count while if she takes the child to day care the day care service counts.
I like the idea if you care for your lawn yourself it does not count nor does the exercise you get, but if you hire someone so you have time to go to the gym and exercise the payment to the lawn service and to the gym both count,
GDP counts the goods and services exchanges for money, so to a certain extent shifting goods and services from home production to a market service counts as growth but it really is not growth.
But that has always been true and may distort the data less now that it did a 100 to 200 years ago when the typical American was on a subsistence farm and produce much of their own food, clothing, etc.
Lamont:
Impressive for whom?
After Oct 2001, we gradually shuffled people off into Not In Labor Force dropping from a high of 66.8 to a recent low of 64.6 or ~6 million people dropped not counting Unemployement. Who grew and who didn’t? Certainly it wasn’t Labor. Payroll Wages have been relatively stagnant since 2001. Productivity gains have been skewed to Capital. Reagonomics was Asset Appreciation.
Spencer:
Thanks