A. Recession: commonly
accepted definition is two consecutive quarters
of negative growth in Real GDP
B. Why business economic activity fluctuated
follows a cycle
Should we jettison GDP as an economic success points out many
Recent Growth Cycles
1950-1985 Only Two Since
Since 1950 Only the Great Recession Had a Negative
1. Inventory Recession:
Excessive optimism causes inventories to over expand
eventually be worked down causing a recession.
to track inventory and made this type of
recessions less likely.
Shock not foreseen by economic models oil embargo
recessions of the
1970's of 70's.
3. Rolling RecessionDownturn is limited to areas or sectors of the economy.
a. Economic activity eventually increases but by then other areas and
are in recession.
b. International competition has increased the occurrence of this type of
as sectors such as steel, autos, and recently computers have
recession: private sector debt causes a focus on paying
down debt which lowers
aggregate demand and substantially lowering
of the Great Recession
b. An Historical
Perspective on the Crisis of 2007-08
c. Often require a central bank to act as a
Lender of last
5. Innovation Cycle:
railroads, computers, bio-technology cause growth/crash
6. Political Events: wars, international trade
7. Misuse of
Monetary and Fiscal
Policy: government creates, borrows and or
spends an incorrect amount of money
to moderate economic activity.
a. Well run economies like Taiwan, Japan and the U.S. are all recently
b. Some feel Chain's authoritarian government which has successfully
growth for 30 years will again steer clear of
The Rise and Fall of Nations: Ten Rules of Change in the Post-
World’, thinks they are in Deep Do Do, or D3
for math people.
Seasonal variation: Christmas buying rush, spring construction
Long-Term Secular Trends: the expansion or contraction in the
level of economic activity over a long period of years (the dark
ages, the industrial revolution) For more visit
Long Waves Theories of Development
from Professor Kunter Krumme,
Call this a Recession, At Least It is
Not the Dark Ages
Generations and The Fourth Turning
Abbott and Costello Explain the Unemployment Situation
Action to Stop Recent Recessions, NYT
2017 Q1 US GDP a Sad 0.7%
The first quarter GDP initial estimate is a pathetically weak0.7%.
While the usual suspects, changes in private inventories,
imports and government spending all contracted, the real drama
is in the very weak consumer spending growth. Consumer
spending is most of GDP and only gained a paltry 0.3% for Q1.
Generally speaking, Q1 GDP's showing is pathetic, yet fear
not, there are two revisions before the final and very often
the revisions are not nearly as bad as the initial report. Q4
GDP was 2.1% by comparison.
As a reminder, GDP is made up of:whereY=GDP,
C=Consumption, I=Investment, G=Government Spending, (X-M)=Net Exports,
GDP in this overview, unless explicitly stated otherwise, refers to real
GDP. Real GDP is in chained 2009 dollars.
Note the ten year recovery was the 1990s. The Vietnam expansion
1960s. The longest was after WW2 and included the Korean War. Does
want to invade Clinton or Trump to increase and extend current recovery
Syria plus bringing back the draft?
E. Predicting Recessions 1. Leading Indicators
Unemployment A. 3 Types of
Frictional caused by labor
market time lags.
Workers are between employment because they have been fired,
changing careers, are seasonal workers, have been temporarily
Short-term, inevitable, temporary, and is eliminated with time.
Structural caused by
changes in consumer demand and technology.
is an oversupply of workers with a particular skill.
b. This unemployment is often
concentrated in a particular area,
associated with a
particular industry, and is
c. Increased economic activity
will not decrease this type of
unemployment as training
and/or relocation are
Happened in the 1970's and early 1980's as consumers decided to
buy small foreign
built cars and other products produced
in the Rust
Belt. Now it is happening because NAFTA and foreign
industries to restructuring
needed because of foreign
a. Caused by a lack of total demand
at the end of an economic expansion
d. Recession of the early 1990's was due to a drop in demand caused by
buildup in the 1980's by individuals, businesses, and the federal
Apprehension caused by high structural unemployment
blue and white
collar workers slowed the recovery.
e. Recession of 2001 was caused
by debt build up of individuals resulting
the long period of prosperity and
the stock market bubble, excess
investment caused by Y2K and internet
4. For Visual
5. Four Videos
a. Structural and
b. Cyclical c. Natural d.
Generation JoblessEditor's Note:US
party line is the same as in
Historically capitalism has solve the problem. Solutions
work week, more vacations, Ubers, less borrowing,
and lower supply.
To answer this question first requires a
few definitions. A person is considered unemployed if he or she is
actively seeking work and willing to take work here and now. It is
therefore not sufficient to simplynot
be working. But this definition of unemployment does necessarily
define (1) whether someone who isunderemployed
should be counted as well or (2) how intensely someone must search for a
job to qualify as unemployed. For this reason, the Bureau of Labor
Statistics provides different unemployment rates, graphed above. These
are commonly called U-1 through U-6:
only those who have been unemployed for at least 15 weeks, which was
traditionally a little longer than the average duration of an
unemployment spell. This is considered to exclude short-term
those who are unemployed because they have lost a job or completed a
temporary job—in other words, workers in a precarious situation in the
labor market, as they are more likely to find an unstable or
the headline unemployment rate generally reported in the media: People
who are able to work, ready to work, and have looked for work in the
past four weeks. This corresponds the most closely to the definition
of unemployment we started with.
U-3 plus those who would like to work but have stopped looking—the
so-called discouraged workers—because they believe there are no jobs
U-4 plus those who are marginally attached to the labor market who,
for any reason, are no longer searching for work but may still work.
U-5 plus those who are working part-time but would prefer to work
These various interpretations of the definition of unemployment allow us
to have a better understanding of the status on the labor market. But
one may still have some misgivings about them. For example, the
higher-numbered definitions give equal weight to different classes of
unemployed workers. For example, should a person qualifying for U-1
count as much as a person qualifying only for U-5 and U-6 when
evaluating the health of the labor market? To address this question,
there is the Hornstein-Kudlyak-Lange index that creates a weighted sum
of the different categories. The goal is to evaluate the
underutilization of labor in the economy. This index (it is available
with and without the part-time workers from U-6) is plotted below along
with the popular U-3."
Editors Note: The
unemployment rate was high in 2011, 2012
and early 2013. But, calling it a Great
Recession compared to the 1970's and early 1980's which also had inflation
which really hurt those on fixed incomes
and those with non real estate assets is an exaggeration. Especially since the
earlier period had two periods of high unemployment and ten
plus years of slow growth might.
be a bit of a stretch?
16) Stagflation and the Rise of
A. Calculating Inflation:
What does a basket of goods cost?
1. An increase
in prices is measured by a price index
a. Consumer Price Index, CPI
b. Producer Price Index,
2. The PPI measures the change in wholesale
3. The PPI is a
leading indicator for CPI as
wholesalers can usually
pass price changes on to retailers
who pass them to
a. Recent increases in
foreign competition made passing
price increases on
b. The internet had
the same kind of affect in the late 1990's.
4. Calculating inflationary rate for a year when a basket of
from $400 to $420 would be calculated as
Chained Consumer Price Index allows basked of goods
change, if oranges are expensive, buy bananas
What if chained cpi had been used to calculate COLA?
CPI-urban since 1913 check out the
Some question government procedures when
Shadow Government Statistics
Grossly Distorted Procedures
is a way of
accounting for the changing product quality
when calculating price movements. For example, today's
computers are 2 to 3 times faster and have more
than models produced just
a few years ago.
If someone can buy a
better computer today than last
year for the same price, have not prices really
Here is another
example. Is it realistic to
price of a 1955 Chevy
with the price of a 2005 Toyota
player, anti-lock breaks, seat belts, air bags,
power steering, power brakes, etc etc etc? See
Price Hedonics: A Critical Review
A Note on the
Impact of Hedonics
and Computers on Real GDP.
Financial Sense Online - The Core Rate
Monthly Labor Review
counters the Shadow Government Statistics
arguments concerning inflation
1. Demand-pull inflation
a. Increases in C + I + G + XN will cause GDP to increase.
b. As the economy nears full employment, the prosperity
caused by high
increases demand and put
upward pressure on prices.
c. When this happens, the
economy is said to be overheated.
2. Cost-Push Inflation a. As the economy approaches full employment factor resources
scarce allowing their owners to increase prices.
b. Supply-side shocks can cause high resource prices even if
demand for resources is low, i.e., OPEC's two oil embargoes
of the 1970's
C. Economic Effect of Inflation
1. Both income and
resource allocations are affected by inflation
as the market tries to adjust to the loss in value caused by inflation.
a. High gas prices in the 1970's caused a switch to small cars and
many people bought wood stoves.
b. Low gas prices in the 1990's made RV's less expensive to run.
(homeowners, businesses, government) are helped by high
inflation because they pay back with dollars worth less than those
3. Creditors are hurt by inflation as they are paid
back in less valuable
dollars. hose on a fixed income are also hurt by the
4. Cost-of-Living Increases (COLA's)
were instituted in the 1970's
to negate the severe effects of that period's high inflation.
cost of living from
Stronger U.S. Dollar-The Winner and Losers
CPI: All Urban Consumer-All Items 7.
Heterogeneous Impacts ofRising Inflation 10/14/16
Inflation Doesn’t Impact Everyone the Same D. Affects of Deflation caused by a lack of
1. Slow growth and unemployment, business failures and
2. Governments are
under pressure to grow their economy
Buying-Power of U.S. Dollar visualizes 100 years of inflation
Unit IV. ReviewInflation caused by Demand Pull or
and Cost Push or low supply
Prejudice determines variables measuredand mathematical procedures followed.
a. Median income is lower over time
than average income (Adam Sandler brings average up lots)
b. Economists, politicians and
business use the procedures that keep constitutes happy. 1) Hillary
Clinton uses median and states low wages must be increased.
Trump uses average income, states wage high enough, cut spending.
advertise average income of those with a bachelors
much lower median income of those with just a bachelors
degree is more representative of a college's economic return.
Median is almost always a better representation for income.
B. Price Index used dramatically changes result
1. CPI Adjusted Index-Chart is
a) Adjusts for seasonable
Under estimates income change source
CPI-U-RS Adjusted-Chart is Blue
Measures urban purchases which is
more realistic but it
not incorporate all possible data on past inflation.
b) For example, no attempt
made to reflect any new information
on trends in the safety or comfort
of air travel for which there
is no corresponding methodological change
PCE A Index-Chart is Green reflects
consumer substitution" is
difficult to implement in real
When oranges are really expensive substitute bananas or
4. The CPI A is like always shopping at the local convenience
and the PCE is like shopping at Wal-Mart
for the now
popular i-phone. Use CPI to
make people look poorand use
PCE assumes economic shoppers.
Problems With Economic Measurements Over Time
5 min video
Because CPI A is higher, nominal wages are adjusted
lowered more. Changing buying habits
by price helped 15 points with CPI-U-RS and 29 points with PCE A. While the
Federal Reserve considers the PCE A
best for measuring the affects of
inflation many use the others bring truth to the statement their are liars,
darn liars and statisticians. See
Bruce Sacerdote is worth noting:
C. Workers receive more than
income: compensation compared to
productivity determines degree of stagnation. a.
Index is used by many to adjust income changes
over tine for
inflation. CPI is for quick, timely use, not for
Total Compensation Index-CPI adds fringe
benefits to represent value received
c. TC using
Persona Consumption Expenditures Price Index
goods and services targeted toward consumers and is a
to consumer purchases.
Implicit Price Deflatoradjusting PCE for changes in consumer behavior in response
to price changes and change in
Heritage Foundation with
data from US government agencies.
Unit V. ReviewPopular media, out of work politicians and low
income earners believe so.
About 20 years ago I read where people concerned over the budget wanted to tie government
salaries and SS to a more realistic measure of inflation and I was not
surprised when government employees making the decision took about ten
to make the change.
SS still uses a CPI Index to adjust benefits which gives recipients a bonus. "...many economists,
...conclude that the CPI overstates
inflation." "... only some of the upward bias in the CPI have
"The Chained C-CPI-U
is another step toward eliminating the
remaining in the CPI-U and
As of 2005 the BLS reports
to our knowledge currently is not
used in any federal legislation
as an adjustment mechanism."
Recently when the IRS came under fire
for going after conservative non profits I thought the reason was they
thought liberal would want more government, more employees, more promotions
The Good Old
Days Were Expensive
Really Big and Really Expensive
and Everyone had a Sunburn
Today's TV Screens
are Bigger, Set Is Smaller With a Much Better Picture
and Look at All the Extra Stuff You Get Today!
Real Per Capita GDP
The Best Measure of Our Economic System
Current 2014 economic unhappiness with our economy blames capitalism when distribution
of income and solving economic related problems in a democratic republic is the
job of the people and their government.