I keep seeing references to the 1970’s stagnation that reflect a consensus belief that real GDP growth in the 1970s was significantly lower in the 1970s than in the 1980s.
But this is contrary to the data:
REAL GDP GROWTH( % )
Yes, the 1970s had a serious problem with inflation, but that does not negate the fact that real GDP growth was actually higher in the 1970s than in the 1980s. We need a different term to correctly describe the 1970s rather than stagnation.
So why do knowledgeable economist like Krugman not recognize that applying the stagnation term to the 1970s creates a false impression about our economic history.
I think the stagnation part of the term stagflation is more in regards to sentiment of the country at the time as opposed to actual economic growth
I guess I will be saving this post of your also. 🙂
It’s the press not letting the facts get in the way of a good story. Carter grew the economy more in four years than Reagan did in eight, but somehow Carter was terrible for the economy, but Reagan was great. Look at how the press insists that Clinton’s popularity collapsed during his impeachment, when in fact it soared.
Using the numbers above for real GDP growth after the Carter administration (1977-1980) the GDP was 14% more than at the start. After the Reagan administration (1981-1988) it was 31% more.
In doing comparisons between the two decades it is important to remember that the way of calculating inflation was changed in the early 80’s. This had the effect of reducing inflation, hence increasing real GDP growth in the 80’s versus the older methodology.
Larry, your comments are a perfect example of a little knowledge being a dangerous thing.
Yes, the methodology used by the BLS to calculate housing in the CPI was changed in 1982 and it significantly impacted inflation as measured by the CPI.
However, the BEA uses the GDP deflator to calculate the real GDP data
and the change in the CPI housing component had no impact on the calculation of real GDP.
As for your comparisons of real GDP I can also get any results I want if I throw out all the bad observations.
One set of numbers doesn’t give an accurate picture of that time period. It really sucked. One crisis after another.
It only looks good compared to what came afterwards, which shows just how bad the crisis has become over the decades.
I think veterans of the period regarded the 70’s as an era of stagnation becuase GDP growth in the 70’s was much lower than GDP growth in the 60’s. Here are the numbers for the 60’s:
As you can see, that’s about 1.4% less, which is a lot. Also, civilian unemployment declined steadily throughout the 60’s, in a decade of no recessions, falling from around 6% at the beginning of the decade to 3.2% at the end. In the 70’s unemployment shot up, mainly due to two recession-induced surges in joblessness.
Finally, real compensation of employees grew by 59% over ten years in the 60’s, but only by 22% in the 70’s.
So yeah, the US economy stagnated in the 70’s, compared to where it had been going. The stagnation continued in the 80’s
It is more of a question of who’s ox is being gored.
The inflation of the 1970’s did not do that much damage to labor.
Employment and real earnings actually did fairly well in the 1970s.
I remember in mid-1974 when business was giving employes some 5% to 10% across the board wage increases to stem the flood of people changing jobs to get higher salaries.
But capital was devastated in the 1970s with soaring interest rates and a collapsing stock market. The stock market did not surpass its 1973 peak until the middle of 1980. This reversed in the 1980s with returns to capital soaring and real labor compensation stagnating.
This was the start of soaring inequality and the massive divergence between productivity and labor compensation.
By referring to the 1970s as a period of stagnation it is contributing to the propaganda that attempts to hide how poorly labor has done in recent decades.
You really should take the geometric mean, not the arithmetic mean. For the 1970s it was 3.21% growth per year (1.0321); for the 1980s it was 3.13% growth per year (1.0313), for an advantage of 0.07% for 70s/80s. (1.0321/1.0313). A difference that is hardly worth mentioning.
You are absolutely right. There was no significant difference between the 1970s and 1980s. That is the whole point of my post.
Every time some reputable economist uses the stagnant 1970s terminology he reinforces republican propaganda that Reagan saved the economy from a horrible fate. Growth under Clinton was the best we have seen over the last 50 years, and he raised taxes. The republican low tax, large deficit strategy has been a complete failure. But the massive republican propaganda machine is convincing the public otherwise.