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
navigated growth for 30 years will again steer clear of
Ruchir Sharma's 2016 book
The Rise and Fall of Nations: Ten Rules
of Change in the Post-Crisis
World’, thinks they are in Deep Do Do, or
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
While Q2 GDP Is Bad News,
the Revisions are Worse
The first Q2 GDP estimate shows a surprising sputtering 1.2%
of economic growth. That is a much weaker second quarter than
most expected as investment declined -9.7% from the first
quarter and the price index was much higher. Worse, GDP was
revised for 2016 Q1 back to 0.8%. GDP for years 2015, 2014
and 2013, were all revised higher. Yet since Q2 2015,
quarterly GDP was revised lower, showing quite the sluggish
slowdown going on for at least a year. The revised annual GDP
figures are now 2012: 2.2%, 2013: 1.7%, 2014: 2.4% and
2015: 2.6%. The below graph shows economic growth has been
anemic since Q2 2015.
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
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
goods increase from $400 to $420 would be calculated as
B. Price Index used dramatically changes result
1. CPI Adjusted Index-Chart is
a) Adjusts for seasonable
Under estimates income change
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.
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 overtine
inflation. CPI is for quick, timely use, not for
time series analysis.
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
Source Heritage Foundation
data from US government agencies.
Unit V. Review Popular 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.