Saturday, January 24, 2009

Another Reason Fiscal Stimulus Won't Work: LAGS

WASHINGTON POST -- Less than half the money dedicated to highways, school construction and other infrastructure projects in a massive economic stimulus package unveiled by House Democrats is likely to be spent within the next two years, according to congressional budget analysts, meaning most of the spending would come too late to lift the nation out of recession.

A report by the Congressional Budget Office found that only about $136 billion of the $355 billion that House leaders want to allocate to infrastructure and other so-called discretionary programs would be spent by Oct. 1, 2010. The rest would come in future years, long after the CBO and other economists predict the recession will have ended.


For example, of $30 billion in highway spending, less than $4 billion would occur over the next two years. Of $18.5 billion proposed for renewable energy, less than $3 billion would be spent by 2011. And of $14 billion for school construction, less than $7 billion would be spent in the first two years.

From Bruce Bartlett's Wall Street Journal article "If It Ain't Broke, Don't Fix It" (12/2/1992):

This follows the pattern of postwar countercyclical programs: All were enacted well after the end of the recession. They exacerbated inflation, raised interest rates and made the next recession worse.

Bartlett documents the fiscal stimulus plans that were passed in response to the recessions 1948-49, 1957-58, 1960-91, 1969-70, 1973-75, and 1981-82, and shows that: a) in each of the six recessions, the fiscal stimulus legislation wasn't even signed into law until the end of the recession at the earliest, and in some cases wasn't passed until a year after the recession ended, and b) in all cases the fiscal stimulus plans took effect well after the recessions had ended.

MP: There has been a lot of debate lately about the effectiveness of stimulus plans, and the size of the multipliers, etc., and most of that debate probably assumes that the timing of the stimulus is perfect. But what if the timing isn't perfect, due to the long legislative lags designing the policy and the long lags before the policies actually take effect? In that case, even if some of the multiplier effects work as intended, it's still possible the policy will fail, and will actually destabilize an economy that has already recovered from a recession.

In other words, unless fiscal stimulus is timed perfectly, it will fail to stimulate the economy. Given the reality of legislative and effectiveness lags, perfect timing is impossible. Given that reality, fiscal stimulus policy won't work due to the problem of lags, regardless of any multiplier effects.

See Greg Mankiw's related post about fiscal policy lags here.

When You Can't Count On the Market for Success...

GM is not counting on market success for its comeback. It has neither the cash reserves nor the brilliant product line needed for that in a down economy, when sales are expected to be 40% lower than two years ago (the lowest volume since the 1973 Arab oil embargo).

GM is counting on the government to stay alive.

~"Detroit Bets Its Future on Washington" in today's WSJ by Detroit News cartoonist Henry Payne (see his latest cartoon here) and Shikha Dalmia


Cartoons of the Day

IBD's Michael Ramirez:
Detroit News' Henry Payne:


It's Deja Vu All Over Again: 1992 vs. 2009

The July 1990 to March 1991 recession was one of the shortest in U.S. history (8 months according to the NBER) and relatively mild: the jobless rate averaged only 6.1% during the recession and reached a high of only 6.8% by the end of the recession (although it continued to rise after the recession ended, see chart above). I think there is a general consensus that the 1990-91 recession was nowhere near as severe as the three previous recessions of the 1970s and 1980s, and it's a fact that the 1973-75 and 1981-82 recessions were twice as long (16 months) as the 1990-91 recession. And yet, as a follow up to yesterday's CD post, here is what the media were reporting about the 1990-91 recession:

"In 1991 the average American expressed more pessimism about the future than at any time since the Great Depression."

"There is no question but this is the worst economic time since the Great Depression.”

"Sluggish economic growth this year will cap the worst three-year period centered on a recession since the Great Depression."

"Forecasts for a weak recovery in 1992 suggest the period since 1990 will be the worst for the economy since the Great Depression."

“.....the worst plunge since the Great Depression.”

"The banking industry has plunged to its lowest point since the Great Depression."

"This is the most severe economic dislocation we've had since the 1930s. Few are immune."

"Mr. Barry, a past president of the Chamber of Commerce, said 50 For Sale signs are just the tip of the iceberg, since many bank foreclosures and repossessions do not carry signs. "It's not a recession, it's a depression," he said."

“….with the US economy locked in a recession and more people out of work since the Great Depression.”

"....the worst (retail) sales period on record since the Great Depression."

"This recession is hitting white-collar workers more heavily than any since the Great Depression of the 1930s."

More On $71 Per Hour vs. $49 Per Hour

What do employees of the United Auto Workers cost auto makers in salary and benefits?

About $71 an hour, significantly more than the $49 paid by nonunionized counterparts at Japanese, German and other so-called "transplant" factories in the U.S. But most of that gap is in how much GM, Chrysler and Ford shell out for workers who long ago clocked out for retirement.

According to documents submitted by Ford to Congress, the auto maker pays its current workers $29 an hour. Wages and other labor costs are generally the same for GM and Chrysler, according to company officials and labor experts. The equivalent wage on the nonunion side is a bit less at the older foreign-owned auto plants. Toyota pays workers in Kentucky about $26 an hour.

The gap widens because United Auto Workers get more holidays and vacation pay. The Big Three also have to continue paying workers who have been laid off. For that, Detroit's three auto makers pony up an additional $14 an hour, compared with $9 for the transplants. The big difference comes in the cost of health care and pensions for retired workers. Over the decades, the number of retired Big Three workers has risen into the hundreds of thousands. Their health care and pension costs add $16 to the hourly labor costs the Detroit companies pay.

~Wall Street Journal

Update: Chart above added.

Friday, January 23, 2009

Time Magazine Cover Story: Why We're So Gloomy

Some selected excerpts from the Time Magazine Cover Story "Why We're So Gloomy":

"I haven't really been able to sort out exactly why there has been this degree of pessimism."

~Former President Bush


Well, why are Americans so gloomy, fearful and even panicked about the current economic slump?

In one of history's most painful paradoxes, U.S. consumers seem suddenly disillusioned with the American Dream of rising prosperity even as capitalism and democracy have consigned the Soviet Union to history's trash heap. Hard times are forcing some people to turn their back on the American Dream.

"Whining" hardly captures the extent of the gloom Americans feel as the current downturn enters its 14th month. The slump is the longest, if not the deepest, since the Great Depression. Traumatized by layoffs that have cost more than 1.2 million jobs during the slump, U.S. consumers have fallen into their deepest funk in years.

While some economists have described the current slump as a near depression, that phrase overstates the case if it is taken as a comparison with the period 1929-33, when the U.S. economy contracted by nearly a third. The D word becomes more valid, especially with a small d, when it is used to compare the growth rate of the 1930s, which averaged 0.5% a year, with the expected sluggishness of the next decade, which some economists predict will see an average growth rate of 2%.

"I'm worried if my kids can earn a decent living and buy a house," says Tony Lentini, vice president of public affairs for Mitchell Energy in Houston. "I wonder if this will be the first generation that didn't do better than their parents. There's a genuine feeling that the country has gotten way off track, and neither political party has any answers. Americans don't see any solutions."

The deeper tremors emanate from the kind of change that occurs only once every few decades. America is going through a historic transition from a heedless borrow-and-spend society to one that stresses savings and investment. When this recession is over, America will not simply go back to business as usual.

The underlying change in the way American consumers and business leaders think about saving and spending will make the recovery one of the slowest in history and the next decade one of lowered expectations. Many economists agree that the U.S. will face at least several years of very modest growth as consumers and companies work off the vast debt they assumed in the last decade.

The conditions that led to today's transition economy go back several decades. Americans have suffered a long-term stagnation of their earnings. The median income of U.S. families has virtually stood still since 1973, showing an annual gain of just 0.3% a year.

The recent debt binge took place on a colossal scale in every sector of the economy. Runaway federal deficits have more than tripled the national debt. Meanwhile, consumers increased their IOUs from $1.4 trillion to $3.7 trillion last year. And U.S. industry raised its debt from $1.4 trillion to $3.5 trillion over the same period. The reckless borrowing made a reckoning inevitable.

So far, though, no reprieve from layoffs is anywhere in sight. Economists say U.S. companies will shed more than 1 million jobs in fields ranging from banking to aerospace, a pace even faster than last year's. "It's become almost like a poker game to see who can cut the most," says employment analyst Lacey. "There's a kind of corporate frenzy."

GM's plans to close 25 plants and cut 74,000 jobs, or 19% of its work force, scarcely addresses such problems as why it takes the company up to a year longer than the Japanese to redesign its cars.

MP: This was from the January 13, 1992 edition of Time Magazine, and the opening quote was from President George H.W. Bush, and the article was about the relatively mild 1990-1991 recession. Note: I altered some of the text above so that the specific time period was not obvious. Notice the distinct similarities to the reporting about today's economy.

HT:
Alex Tabarrok at Marginal Revolution

Update: The 1990-91 recession started in July of 1990 and ended in March of 1991, but the end of the recession wasn't announced by the NBER until December 1992, so the Time Magazine article was actually written ten months after the 1990-1991 recession ended.

Thursday, January 22, 2009

Jobless Claims Would Have to Top 900,000 To Reach the Same Levels of the 1970s and 1980s

Update: I found a longer dataset for jobless claims and was able to update the post below.

A Google News search for the two phrases "unemployment claims" and "26 years" results in more than 100 news items that report some version of this story: "The number of new U.S. unemployment claims rose to 589,000 in the past week, matching the highest level in more than 26 years." But what most news reports failed to mention is that today's labor force (154.4 million) is almost 40% higher than in 1983 (110.7 million), see chart above (click to enlarge), meaning that unadjusted comparisons of jobless claims today to 1983 are relatively meaningless.

The chart below shows monthly jobless claims as a percentage of the total labor force, from Jan. 1973 to December 2008 (should be approximately the same in January 2009). The current level of jobless claims as a percent of the labor force (0.355%) is above the 2001 recession, but below the four previous recessions (1973-1975, 1980, 1981-1982 and 1990-1991). To reach the same levels of jobless claims (as a percent of the labor force) as the recessions of the 1970s and 1980s (0.60%), we would have to see jobless claims today reach levels above 900,000.


Adjusted for the Growth in the Labor Force, Jobless Claims Are Below the 1990-91 Recession

ASSOCIATED PRESS -- The Labor Department reported today that initial jobless benefit claims rose to a seasonally adjusted 589,000 in the week ending Jan. 17, from an upwardly revised figure of 527,000 the previous week. The latest tally was well above Wall Street economists' expectations of 540,000 new claims. The total matches a 26-year high reached four weeks ago. The last time claims were higher was in November 1982, when the economy was emerging from a steep recession, though the work force has grown by about half since then.

MP: The chart above from 1987 to 2008 shows why comparisons of unemployment claims today to past years are meaningless, without adjusting for the change in labor force. In the last 22 years, the U.S. labor force (blue line) has increased by 30%, from about 119 million in 1987 to more than 154 million today.

The chart below shows initial jobless claims as a percent of the labor force, to adjust for the increase over time in the population and labor force. December's 0.355% level (549,000 average weekly claims / 154,447,000 labor force) is above the 0.333% peak at the end of the 2001 recession, but still way below the 0.3915% peak of the 1990-1991 recession. (Note: The January labor force number has not been released, but the average jobless claims so far in January (522,500 on a 4-week moving average basis) are actually lower than December's 549,000 number, so the January figure for jobless claims as a percent of labor force could be lower than December.)

Bottom Line: Adjusted for the size of the labor force, unemployment claims haven't even yet reached the level of 1990-1991 recession. So before we make exaggerated claims of the "worst economy since the Great Depression©" we might first make comparisons to the 1990-1991 recession, and it's still not yet as bad today as it was in the early 1990s. Calculated Risk uses a longer dataset that includes the 1970s and early 1980s, showing the same thing - we've got a long way to go before today's economic conditions come close to matching previous recessions of the 1970s and 1980s.


Traffic Volume Continues To Drop in November; New Record: An Annual Decline of -112B Miles

The Federal Highway Administration reported today (direct link here) that travel during November 2008 on all U.S. roads and streets fell by -5.3% compared to November 2007. This drop marks the thirteenth consecutive month of traffic volume decline compared to the same month in the previous year. Travel YTD through November 2008 also fell by -3.7% compared to 2007.

The thirteen consecutive monthly declines (November 2007 through November 2008) in miles driven compared to the same month in the previous year represents one of the most significant adjustments to driving behavior in American history.

On a moving 12-month total basis, traffic volume in November fell to 2,894 billion miles, the lowest level in almost five years - since January of 2004 (see chart above), and this measure of traffic volume fell in every month of 2008.

Bottom Line: The moving 12-month total traffic volume in November 2008 (2,894 billion miles) is below the November 2007 level (3,006 billion miles) by 112 billion annual miles driven, the largest annual decline in FHA history (data go back to 1971). At an average fuel efficiency of 20 m.p.g., and an average gas price of $3.39 per gallon over that period (data here), that reduction in miles driven represents an annual savings of almost $19 billion for American consumers and businesses.

That's in addition to the much larger $325 billion estimated annual savings for consumers and businesses from the drop in gas prices from $4.12 per gallon to $1.82 since July (
gas price data here), since American consumers and businesses save about $1.42 billion annually for every penny decrease in gas prices (see calculation here).

GM: Borrowing at 8%, Lending at 0%

ASSOCIATED PRESS (12/30/2008)General Motors said it will offer financing as low as 0% for several 2008 and 2009 models as the automaker makes a big year-end push to improve sales.

The news comes a day after its troubled lending unit, GMAC Financial Services, agreed to take a $5 billion loan from the Treasury Department. GM said it will offer 0% financing for up to 60 months on the 2008 Chevrolet TrailBlazer, GMC Envoy and Saab 9-7X sport utility vehicles through GMAC. The Saab 9-3 and 9-5 sedans also qualify for zero-percent financing. The carmaker is also offering financing between 0.9% and 5.9% on more than three dozen other 2008 and 2009 models, including many trucks and SUVs.


Separately, GMAC said Tuesday that it will offer auto loans to customers with credit scores as low as 621, eliminating restrictions put in place two months ago that required a minimum score of 700.

Quote of the day from Jeff Macke (CNBC Fast Money contributor) via Dennis Gartman's "The Gartman Letter":

"GM has become a company that borrowed money from the U.S. government at 8% and lent it to the American public at 0%. This is not a model we would like to build upon.”

MP: And GMAC lowered credit standards at the same time it offered 0% financing.

Wednesday, January 21, 2009

The Model of the Future: Convenient, Affordable Healthcare and Plenty of Jobs

The chart above (click to enlarge) shows the annual percent growth in monthly employment (from the same month in the previous year) since 2004, comparing growth in the health care sector to the growth in overall total employment. Even during the recession, health care employment continues to grow at almost 3% annually, and there was an increase of 371,600 health care jobs in 2008. In contrast, overall job growth has been negative and falling since mid-2008, with a total job loss in 2008 of almost 2.6 million.

One reason for the continuing growth in health care employment might be provided in this story: "As Retail-Based Clinics Grow, So Do Jobs for Specialty Nurses":

The proliferation of health clinics in retail stores has created hundreds of job opportunities for advanced nurse practitioners — a primary-care specialty whose ranks are growing at a time when the number of family doctors continues to decline.

“I love the concept,” said advanced nurse practitioner Marina Ordiner said. “I think it’s the model of the future. It’s convenient, it’s affordable.” What she likes best is having the ability to spend more time with patients.

Interesting Charts of the Day

The chart above shows the monthly employment levels since 1969 in: a) the construction and manufacturing sectors combined, and b) government. Back in 1969, there were almost 2 manufacturing and construction jobs for every government employee. Since then, government employment almost doubled from 12 million in 1969 to almost 24 million today, as manufacturing and construction jobs have remained flat and have recently fallen, to the point that there are now more workers employed by government than are employed in the manufacturing and construction sectors. A version of this graph was posted here and here (thanks to Tim Wise).

But before getting too depressed about that trend, I decided to check something else: Government employees as a percent of total nonfarm employment, and the interesting results are presented here:

As the chart shows, there has been a general downward trend in government employees as a percent of total payrolls since the mid-1970s, from more than 19% in 1975 to below 16% by 1998, with a slight reversal of the trend since 2000.

As much as we hear about the growth in government, it seems like the jobs data tell a different story. Comment welcome.

One explanation for the top chart is that there have been so many productivity gains in manufacturing that we can produce increasingly higher levels of output over time with fewer and fewer manufacturing workers?


Trends: Laptops and Cellphones Dominate

About a month ago, it was reported that in the third quarter of 2008, sales of laptop computers exceeded desktop sales for the first time ever. A similar phenomenon has been taking place for phone preferences, as the BLS now reports that:
In 2001, the ratio of spending on residential phone services to spending on cellular phone services was greater than 3 to 1 (see chart above). In 2007, cellular phone expenditures accounted for 55% of total telephone expenditures compared to 43% for residential phone expenditures.
HT: Ben Cunningham

Tuesday, January 20, 2009

The Economy Is Bad, but 1982 Was Worse

I thought it would make sense to get some clearer historical perspective, and the economists at the Bureau of Labor Statistics (BLS) were nice enough to help me do so. In the last week, they helped me put together a broad measure of the job market — one including both official unemployment and more subtle kinds — stretching back to 1970. Since the job market covers the entire economy and affects families in tangible ways, it seems to be the single best yardstick.

And it shows, for starters, that the economy is not yet as bad as it was in the early 1980s. It’s not even that close to being as bad. The ranks of unemployed and underemployed, controlling for the size of the population, were much larger in 1982 than today.

I took estimates from the Labor Department and created a measure of unemployment that goes back to 1970.
Including discouraged workers, the measure shows that the unemployment rate was 7.6%. Another 5.2% of the labor force was involuntarily working part time. These two groups bring the combined rate to 12.8%.


Even this is an understatement, because the Labor Department’s definition of discouraged workers is a little narrow. To be counted, somebody must have looked for a job in the last year. And there appear to be several fhundred thousand people — mostly men — who stopped looking for work more than a year ago but would gladly take a good-paying job if one came along. They would lift the rate above 13%.

As bad as the number is, it is still not that close to its 1982 peak of 16.32% (or anywhere near its Depression levels, which were probably above 30%). The early 1980s really were that bad.

~David Leonhardt in today's NY Times

MP: As I reported earlier, some of the other key differences between today and the early 1980s are:

Prime Rate
1981: 20.5%
2009: 3.25% (Current)

Inflation
1980: 14.8%
2008: 0% (December)

Unemployment Rate
1982: 10.8%
2008: 7.2% (December)

30-Year Mortgage Rate
1981: 18.5%
2009: 4.96% (Current)

Real Gas Price (2008 dollars)
1981:
$3.45 per gallon
2009: $1.82 (Current)

Wheels Falling Off Global Warming Bandwagon

Over the past decade the global average temperature has fallen to its lowest levels in 30 years:

1. International Falls, Minnesota -- the coldest location in the continental United States -- set a new record in January with a low temperature of minus 40 degrees and snowfall records have recently been set in 63 U.S. locations.

2. After two years of ice-cap melting in the Arctic, an abrupt turnaround occurred in 2008, with ice forming at a record pace.

3. More and more scientists are paying attention to the evidence and rejecting the link between human actions and the recent warming trend.

"The wheels are falling off the global warming bandwagon," says H. Sterling Burnett, senior fellow with the National Center for Policy Analysis. "While climate action boosters continue to call for politicians to ignore reality -- even in the face of mounting contrary evidence against catastrophic warming -- scientists, the public and politicians are wising up."

To Prevent Great Depression II, Cut Taxes to 0%

When Barack Obama takes office today, his first order of business will be a stimulus package estimated to be close to $1 trillion, including $300 million in tax cuts and the largest new government spending program for infrastructure since Franklin Delano Roosevelt. Sages nod that replicating aspects of FDR's New Deal will help pull the country out of a recession. But the experience under FDR largely provides a cautionary tale.

Mr. Obama's policy plans are driven by the conventional economic wisdom that the New Deal economic programs ended the Great Depression. Not so. In fact, thanks to New Deal policies and programs, the U.S. economy faltered for years longer than it might otherwise have done.


The quickest way to strengthen the credit system and begin the end of this crisis is to get money into the economy for true job creation, and not into government work programs. The way to do this is to slash taxes. The U.S. corporate tax rate, currently the highest in the world, should be cut to 0% (corporate income would still be taxed, of course, when distributed to shareholders as dividends). The capital-gains tax should be cut further.

The positive impact on corporate-credit markets, the stock market, the attractiveness of the U.S. to foreign investors, and the willingness to take business risk and create new jobs would be immediate. Capital-gains tax collections would rise. Capital flows would be in the hands of those who are driven to build businesses and permanent jobs efficiently instead of pushing that capital through a government pipeline with endless amounts of friction. If the U.S. is to lead the international economic community out of this crisis, this is the place to start.


~Mark Levey in the Wall Street Journal

Markets In Everything: Medical Tourism in the U.S.

WASHINGTON POST -- You've heard of medical patients traveling abroad to save on everything from hip replacements to nose jobs. But how about heading to Wichita or Oklahoma City? More Americans are discovering medical tourism right here in the United States.

Brokers such as Vancouver-based North American Surgery and traditional medical-tourism outfits, such as Healthbase, in Boston, are connecting patients with U.S. hospitals willing to compete on price with providers overseas and across town.

HT: Ben Cunningham

Thomas Sowell on "Affordable Housing"

Behind the housing boom and bust was one of those alluring but undefined phrases that are so popular in politics-- "affordable housing." In looking back over my own life, I find it hard to think of a time when I didn't live in affordable housing. While the specifics will differ from person to person, my general pattern was not unusual. Most people pay for what they can afford at the time.

What, then, is the "problem" that politicians claim to be solving when they talk about creating "affordable housing"? The ultimate irony is that increasing government intervention in the housing market over the years has generally made housing less affordable than before, by any standard.


Link.

Intrade Predictions for the Dec. 2009 Jobless Rate

Probabilities above are for the December 2009 U.S. jobless rate, from futures contracts traded on Intrade: The Prediction Market. Based on these contracts, there is only a 1 out of 8 chance of an unemployment rate above 9.50% in 2009, suggesting that there's probably almost no chance that in 2009 we would be anywhere even close to the 10.8% jobless rate of 1982, and zero chance of reaching the unemployment rates of the 1930s and the Great Depression.

And yet according to Obama, "I don't think that any economist disputes that we're in the worst economic crisis since the Great Depression." Trading on Intrade suggests otherwise.

Update: The WSJ consensus forecast for the December 2009 unemployment rate is 8.6%, based on the average forecast of 55 economists.

Monday, January 19, 2009

Chart of the Day: The Hope and Change Index

THE ECONOMIST -- How will Barack Obama measure up, compared with other presidents, in his inaugural address?

Barack Obama is fond of hope and change. By one tally, he said “hope” nearly 450 times in speeches delivered on the campaign trail. (By contrast, his rival John McCain only used the word 175 times.) “Change”, too, was a campaign buzzword. If Mr. Obama makes heavy use of both words in his inaugural speech he would be following in the footsteps of William Taft a century ago. Taft delivered the most “hopeful” inaugural speech of the past 100 years, and was keen on change, too. Only Bill Clinton, in his first speech in 1993, talked about change more (see chart above, click to enlarge).

While hope has found a place in each of the 25 inaugural addresses, change is used more sparingly. Six inaugural speeches did not contain the word; six more made use of it just once. Presidents coming to office during economic booms, such as Calvin Coolidge and Warren Harding in the 1920s, Dwight Eisenhower and then George Bush junior, have been heavier users of hope than those who were inaugurated during leaner times. By that yardstick, expect more change and less hope when Mr. Obama speaks.

Who's Hot and Who's Not In a Slowdown?

HOT: Family Dollar Stores, Up by +60% over the last 12 months

NOT: Target Corporation, Down by -30% over the last 12 months

Serving Two Masters: Patient and Bureaucrat

Most doctors want to serve patients. But there is a conflict: the patient is not the one who pays the bills. Instead, the customer that health care providers must learn to serve is the private insurance company or the government program. If doctors want to get paid in today’s environment, they have to play by rigid third-party rules imposed by employers and government, not patients’ choices.

Reducing our reliance on third-party payments will not be easy. Our moral instinct tells us not to take advantage of someone in distress. That translates into a reluctance to have individual patients pay for their own health care services. Unfortunately, insulating consumers from the cost of what they buy is incompatible with efficiency. In health care, third-party payments force providers to serve two masters—the patient and the bureaucrat.

~From Cato Institute's Briefing Paper "Does the Doctor Need a Boss?" by Arnold Kling and Michael F. Cannon


Mpls. Fed: The Recession in Perspective

From the Minneapolis Fed:

The economy is in recession. But how bad is it? How does this recession compare to previous recessions? This page places the current economic downturn into historical (post-WWII) perspective. It compares output and employment changes during the present recession with the same data for the 10 previous recessions that have occurred since 1946.

This page provides a current assessment of “how bad" the recession is relative to past recessions. It will be updated as new data are released.





MP: Notice that the last graph shows that real GDP growth during the current recession is positive and the second highest (only the 1969 recession was higher) after three quarters, and the only recession showing positive economic growth overall. Of course, the recession has not ended so this will change moving forward. The Fed will update these charts as new data becomes available.

On several different measures of output and employment, the current recession hasn't yet come close to reaching the severity of many of the post-WWII recessions, suggesting that the comparisons to the 1930s and Great Depression might be premature.

Markets in Everything: Inaugural Parade Edition

Who says capitalism is failing in America?

Inaugural parade tickets on Ebay, $150 to $1400.

Inaugural parade tickets on Craigslist, average price $150-$200.

Sunday, January 18, 2009

Bailout Nation Goes Global

FRANKFURT (AFP) – German sex-shop owners and erotic film makers, badly hit by the economic crisis, are pushing for state aid that has also been requested by U.S. peers. "Economic aid would be judicious," said erotic trade federation official Uwe Kaltenberg.

Smackdown: Milton Friedman vs. John F. Kennedy

The upcoming inauguration has been getting a lot of attention, including many reviews of past inaugural speeches. Therefore, I thought it would be appropriate to post economist Milton Friedman's rebuttal to President Kennedy's famous 1961 inaugural address:

From the introduction to Milton Friedman's 1962 book "Capitalism and Freedom".

In a much quoted passage in his inaugural address, President Kennedy said, "Ask not what your country can do for you - ask what you can do for your country."
Neither half of the statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. The paternalistic "what your country can do for you" implies that government is the patron, the citizen the ward, a view that is at odds with the free man's belief in his own responsibility for his own destiny. The organismic, "what you can do for your 'country" implies the government is the master or the deity, the citizen, the servant or the votary.

To the free man, the country is the collection of individuals who compose it, not something over and above them. He is proud of a common heritage and loyal to common traditions. But he regards government as a means, an instrumentality, neither a grantor of favors and gifts, nor a master or god to be blindly worshipped and served. He recognizes no national goal except as it is the consensus of the goals that the citizens severally serve. He recognizes no national purpose except as it is the consensus of the purposes for which the citizens severally strive.

The free man will ask neither what his country can do for him nor what he can do for his country. He will ask rather "What can I and my compatriots do through government" to help us discharge our individual responsibilities, to achieve our several goals and purposes, and above all, to protect our freedom?


And he will accompany this question with another: How can we keep the government we create from becoming a Frankenstein that will destroy the very freedom we establish it to protect?

Freedom is a rare and delicate plant. Our minds tell us, and history confirms, that the great threat to freedom is the concentration of power. Government is necessary to preserve our freedom, it is an instrument through which we can exercise our freedom; yet by concentrating power in political hands, it is also a threat to freedom. Even though the men who wield this power initially be of good will and even though they be not corrupted by the power they exercise, the power will both attract and form men of a different stamp.

Zimbabwe: Who Wants To Be A Trillionaire?

BBC NEWS -- On Tuesday, a 50 billion Zimbabwean dollar note was issued (see above), less than a month after a Z$500m bill was released. Prices can double every day, and food and fuel - for those without US dollars - are in short supply. Now Zimbabwe is introducing a new Z$100 trillion note, currently worth about US$30. Other notes in trillion-dollar denominations of 10, 20 and 50 are also being released to help Zimbabweans cope with hyperinflation.

However, the dollarization of the economy means that few products are available in the local currency.

BBC NEWS -- Increasingly it is only US dollars that are accepted in Zimbabwe's shops. Gas stations are among those now turning away people who offer fistfuls of local currency (see picture below). Even water bills - for what little clean water there is - have to be paid in hard US cash. And bread is now a dollar commodity in many parts of the country. John Makombe, professor of political science at the University of Zimbabwe, estimates that 80% of the population here has no access to US dollar bills.

HT: Greg Mankiw

Cartoon of the Day: Minnesota


Markets in Everything: California Edition II

An increasing number of recession-pinched Los Angeles homeowners are turning to Hollywood for help, offering their houses as sets for feature films, commercials and even adult movies.

HT: Jeff Lehner