Wednesday, April 02, 2008

Free Trade, Globalization & "The Great Moderation"

In recent decades, as foreign trade and investment have been rising as a share of the U.S. economy, recessions have actually become milder and less frequent (see chart above, click to enlarge). The softening of the business cycle has become so striking that economists now refer to it as "The Great Moderation."

For the U.S. economy as a whole, the era of globalization has brought healthy long-term growth and a moderation of the business cycle. Expansions are longer if less spectacular than in eras past, and downturns are mercifully shorter, shallower, and less frequent. Moderation of the business cycle in recent decades is something to be thankful for, and expanding trade and globalization deserve a share of the credit.

~From Cato's "Worried about a Recession? Don’t Blame Free Trade," by Dan Griswold

3 Comments:

At 4/02/2008 12:07 PM, Blogger bobble said...

for a different take on the last 20 years check out this analysis from northern trust:

tinyurl.com/2ob3wn

to summarize: the U.S. has been kept afloat by ever increasing levels of debt

1. Low real interest rates have resulted in record leverage in the U.S. economy.

2. Low real interest rates have led to record household borrowing

3. Record household borrowing has led to escalating debt-service burdens despite low nominal interest rates.

4. Households spent a record annualized $531 billion more than they earned after taxes in the third quarter of 2005, continuing the trend of net household deficits that began in the late 1990s.

 
At 4/02/2008 9:03 PM, Blogger Gregory said...

If what you say is corrent then thank God, we have finally discovered a free lunch. We get a more stable and more productive economy and all we had to do was dip into our savings? If only we had discovered this earlier we could have avoided all the pain and suffering of the 20th century.

 
At 4/03/2008 11:59 AM, Blogger bobble said...

"We get a more stable and more productive economy and all we had to do was dip into our savings? "

uh, greg . . .

not sure if you were joking there, but in case you weren't, it's not savings, it's DEBT: " Record household borrowing . . . "

 

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