The Business Cycle.

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3 Free Business Book Summaries Including New York Times Bestsellers	Chapter 9 The Business Cycle	Election Issues center on economics. Economists Critique America's Educational System
	email comments to antonw@ix.netcom.com Please

I. Business cycles describe the fluctuations in business activity over time. A. Recession: commonly accepted definition is two consecutive quarters of negative growth in Real GDP. The (F)utility of GDP? argues that his is not a good definition.-The Becker-Posner Blog 12/17/09 B. Why business activity fluctuates 1. Inventory Recession: Excessive optimism causes inventories to over expand and eventually they must be worked down causing a recession. Computers have made easier to track inventory and made this type of recessions less likely. 2. Rolling Recessions: Economic downturn is limited to areas or sectors of the economy. a. Economic activity eventually increases but by then other areas and sectors are in recession. b. International competition has increased the occurrence of this type of recession as sectors such as steel, autos, and recently computers have been affected. 3. Innovation Cycle: railroads, computers, bio-technology 4. Political Events: wars, international trade 5. Misuse of Monetary and Fiscal Policy: government creates or borrows an incorrect amount of money. Note on the graph the1937 attempt to balance the budget! 6. Non-cyclical Fluctuations a. Seasonal variation: Christmas buying rush, spring construction b. 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 1) Long Waves Theories of Development from the Kunter Krumme, U. of Washington. 2) Call this a Recession, At Least It is Not the Drk Ages By Bryan Ward-Perkins 12/22/09 FT.com 7. Durable Goods have a long useful life (houses, equipment, etc.) Sale of durable goods contract substantially during a recession as their purchase may be easily postponed. For how other goods are affected visit U.S. Economic Cycles from Wikinvest. C. Current Conditions 1. Current Business-Cycle Conditions from American Institute for Economic Research (AIER) 2. Chance of a Double Dip Video from Business News Network 6/16/10 D. A Brief History of U S Banking Problems will provide examples of what has caused the business cycle in the United States. from Seeking Aalpha 4/29/30
	GDP 2.5% for Q1 2013 R. Oak 4/26/13 - 5:54pm from economicpopulist.org Q1 2013 real GDP came in at 2.5% This is an improvement, from the stagnant economy GDP in the 4th quarter implied. Government spending declines continue to be a drag on the economy and sucked out -0.9 percentage points from 1st quarter real gross domestic product growth. Imports increased and cost the United States -0.9 percentage points of Q1 GDP. Investment recovered on changes to farm private inventories. Consumer spending increased from Q4 as well. Generally speaking 2.5% GDP implies moderate economic growth, yet overall demand in the economy is weak.
	Final Revision from The Economist Magazine

E. Leading, coincidental, and lagging indicators are measures such as the
unemployment rate which respectively change before, with or after
general economic activity. Economists use to predict future economic activity.

Interesting Links Leading Indicators
US Leading Economic Indicators and Realated Composite Indexes for April, 2008
Conference Board U.S. Business Cycle Indicators
Leading Economic Indicators 2007/01/leading-economic
Index of Leading Indicators – Premature to Rule out Recession
Asha G. Bangalore Northern Trust, May 19, 2008
http://tinyurl.com/4gma4w
LEI and KRWI - It's Different This Time? Paul KasrielNorthern Trust, April 21, 2007
RECESSION IMMINENT? BOTH THE LEI AND KRWI ARE FLASHING WARNING,
Paul L. Kasriel 3 22,07

See Understanding Contrary Indicators
Our Economics Learning Center has interesting materials..

ECRI Believes Recession Began in July 11/29/2012

   F. History
        1. Visit Business Cycle data since 1854 from the National Bureau of Economic Research.
        3. Boettke podcast on the Austrian Austrian Perspective on Business Cycles and Monetary Policy
        4. Great Depression by Robert J. Samuelson, the Concise Encyclopedia of Economics
           a. Amity Shales on the Great Depression, On EconTalk, Russ Roberts interviews Amity Shlaes,
               Bloomberg columnist and visiting senior fellow at the Council on Foreign Relations. She talks
               about her new book, The Forgotten Man: A New History of the Great Depression.
               The podcast discusses Herbert Hoover, Franklin Delano Roosevelt, the economics of the
               New Deal and the class warfare of the 1930s
            b. The Great Depression, On EconLog and in his column at TCS Daily, Arnold Kling also
                focuses on some of Shlaes's observations adding thoughtful insights.
        5. Recession of 2007
             a.. Slide Show: A Business Cycle Ends, and Many U.S. Workers Lose Ground
                  reviews the latest business expansion ending in early 2008. Business Week
              b.. On the Economy CNBC Video, April 10., 2008v
                 An overview of the economy with Joseph Stiglitz, a Nobel Prize-winning economist, and
                 Mohamed El-Erian, co-CEO of PIMCO
             c. Fed Watch: Turning Which Corner? 05/11/09 by Tim Duy
             d. Older Americans Made the Recession Look Better (Excerpts) April 2010,
                 by Marianna Kudlyak, Devin Reilly and Stephen Slivinski
                   of the Federal Reserve Bank of Richmond.
        6. Five ways deflation has already takenhold is a concise forty year review of recent
              cycles From renoun economist Gary Shilling from Bloomberg.com 4/2/13

Top 10 Financial Crises

10. The Panic of 1907: The fourth so-called ”panic” in 34 years.
9. The Mexican Peso Crisis 1994 aka “The December Mistake” Punta !
8. Argentine economic crisis - 1999 If you have no money, is it a good idea to print more?
7. German hyperinflation - 1918-24 If you have to print a 1,000-billion Mark note, you probably have too much inflation.
6. Souk Al-Manakh - 1982 Try not to use post dated to buy stocks
5. Black Monday - 1987 Can we call a 23% drop in a single day a black swan?
4. Russian financial crisis - 1998 devaluation of the ruble and cancellation of debt is never good for a local stock market.
3. East Asian financial crisis - 1997 aka the Asian Contagion
2. Black Tuesday - 1929 — Really? One day, and not the entire Great Depression?
1. 1973 Oil Crisis — Big energy increases cause recessions

Top 10 Financial Crises | The Big Picture

Interesting Video
American-Experience Crash of 1929 Series
South Sea Bubble of 1720
Slow Recovery-Great Recession episode 1 episode 2 , More on the Unusually Weak Recovery
Recovery from the Great Recession from Economics One and
First Principles: 5 keys to restoring America prosperity
One establishes that the recovery actually has been weak—even compared to other recoveries following deep recessions and financial crises.
Two. examines the possible causes of the weakness, and the
Three concentrates on what, in my view, is the main cause—economic policy.

       G. Recent data

For more read Domestic Income and Recession and
Recession Job Losses: 3 Views 9/9/0

H. Long-Term Secular Trends
     1. The Present Crisis, A Pattern a few pages on the history of capitalism

The Dow Jones 1905- 2008 also followed a cycle. Oct. 11; 2008 WSJ

Will the US, like Japan, have two lost decades

Tuesday, August 2, 2011 John B. Taylor on Debating History and Policy with Reich and Krugman Editor's Note: Both R and K are noted liberal seen often in the media.

Book Summary of American Dynasty
Aristocracy, Fortune, and the Politics of Deceit in the House of Bush

II. Three types of unemployment
     A. Frictional is caused by time lags in the operation of labor markets.
          1. Workers are between employment because they have been fired,
              are changing careers, are seasonal workers,
              have been temporarily laid off, etc.
          2. Short-term, inevitable, temporary, and is eliminated with time.
     B. Structural is caused by changes in consumer demand and technology.
         1. Result is an oversupply of workers with a particular skill.
         2. This unemployment is often concentrated in a particular area,
             associated with a particular industry, and is often permanent.
         3. Increased economic activity will not decrease this type of
             unemployment as training and/or relocation are required.
         4. 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 competition are causing industries to
             restructuring is needed because of foreign competition.
     C. Unemployment's Types & Natural Rate ACDC Economics
          and Types of Unemployment Inter Activity
     D. Cyclical
         1. Caused by a lack of total demand at the end of an economic
             expansion
         2. Temporary
         3. Recession of the early 1990's was due to a drop in demand
             caused by a debt buildup in the 1980's by individuals, businesses,
             and the federal government. Apprehension caused by high
             structural unemployment of both blue and white collar workers
             slowed the recovery.
         4. Recession of 2001 was caused by debt build up of individuals
             resulting from the long period of prosperity and the stock market
             bubble, excess capital investment caused by Y2K and internet
             optimism, and September 11.
         5. Great Recession of 2008-09 was caused by the end of an
             excessive building boom compounded by a banking crisis and
             stock market crisis.
         6. Broad Unemployment Across the U.S. Interactive map from the July 14, 2009 NYT.
           7. Unemployment: The Harder You Look, The Uglier It Appears 09/02/09
            8. Long Term Unemployment Rate has almost doubled . 9/9/09
         9. Sticky Wages Hold Back Job Growth WSJ, 11/12/10
       10. The Great Crash 45 minute video

E. Other unemployment topics
       1. Natural unemployment (frictional + structural unemployment)
           is usually 4-6% of the labor force
      2. Full employment is when cyclical unemployment equals zero
      3. Okun's Law: a 1% increase in cyclical unemployment (actual rate -
          natural rate) will cause a 2.0% annual drop in GNP.
           a. GNP change = (2.0) (unemployment rate change)
           b. If unemployment goes up 2% as it did in the 1990-91 recession
               then the drop in GNP would be 2.0 X 2% or 4%.
           c. Approximate first year (2009) cost of the Great Recession
               (3.5% X $14,000,000,000,000) /300,000,000 = $1,633/person
           d. Okun's Law and the Great Recession Business Insider, 3/28/12
      4. Labor Force Participation Rate from The Big Picture blog.
      5. Noneconomic costs of unemployment include loss of skills, self-
          esteem, and
     6   social-political unrest. (Greece may run into this problem in late 2012)
      7. Discouraged workers leaving the workforce lowers unemployment.
           first 2 charts courtesy of Gluskin Shef
      8. Q&A: Unemployment Extension WSJ, 11/18/10
        9. Gallup has Higher Unemployment and Underemployment
           than the government. 04/01/11
    10. How The Government Manipulates Unemployment Statistics D. R. Amerman 3/12
From Employment graph gallery

From The Tragedy of Long-Term Unemployment Seeking Alpha

The Great Depression was something else and there was no snap, SS, MC, MC...

http://www.fns.usda.gov/snap

The Last Big Recession
1980-01       6.3%

1981-01       7.5

1982-01       8.6 Times were already tough!

1982-12-01 10.8 Peak
1983-01      10.4   down 0.4 points
1984-01       8.0    down 2.4 points
1985-01       7.3    down 0.7 points
1986-01       6.7    down 0.6 points
1987-01       6.6    down 0.1 points The Great Recession
2006-01      4.7%
2007-01      4.6
2008-01      5.0 Times had been good!
2009-11     10.0 Peak
2010-01       9.7     down 0.3 points
2011-01       9.1     down 0.6 points
2012-01       8.3     down 0.8 points
2013-2        7.9     down 0.4 points
We need 2.1 points to catch the drop during the last big recession.

Table 3. Cost of Recessions
(% previous peak annual GDP)

Recession Recovery Total

1948q4 4.29 2.56 6.84

1953q3 4.07 3.16 7.23

1957q3 3.30 2.60 5.90

1960q2 2.12 1.46 3.58

1969q4 1.07 1.00 2.08

1973q4 4.75 4.48 9.23

1980q1 2.05 2.73* 4.78*

1981q3 8.65 3.07 11.72

1990q3 1.27 2.89 4.15

2001q1 -- -- --

2007q4 5.54 16.57 22.10

The-cost-of-austerity-and-slow-recoveries? from Seeking Alpha
Cost is loss of GDP from pre recession level

From Extended-federal-unemployment-benefits-begin-to-wind-down 5/28/12
Previous page from businessinsider.com/chart-of-the-day-an-even-scarier-jobs-chart-2012-9

IV. Inflation
      A. An increase in prices is measured by a price index such as the
           consumer producer index, CPI and the Producer Price
           Index, PPI.
      B. The PPI measures the change in wholesale prices.
      C. The PPI is a leading indicator for CPI as wholesalers can
            usually pass price changes on to retailers who pass them
            to consumer.
           1. Recent increases in foreign competition made passing
                price increases on more difficult.
           2. The internet had the same kind of affect in the late 1990's.
      D. What-if-chained-cpi-had-been-used-to-calculate-colas-since-2002?source=email_macro_view&ifp=0
      D. The inflation rate for a year when a basket of consumer goods increase
           from $400 to $420 would be calculated as follows

from seekingalpha

http://www.businessinsider.com/dylan-grice-next-crisis-treasuries-2012-7

E. Recent inflation data provided by the Department of Labor
Our Free Internet Libraries
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V. Causes of inflation
     A. Demand-pull inflation
         1. Increases in C + I + G + X_Nwill cause GDP to increase.
         2. As the economy nears full employment, the prosperity caused by high employment
              increases demand and put upward pressure on prices.
         3. When this happens, the economy is said to be overheated.
     B. Cost-push inflation
         1. As the economy approaches full employment factor resources become scarce
             allowing their owners to increase prices.
         2. 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
VI. Economic effect of inflation
      A. Both income and resource allocations are affected by inflation as the market tries
           to adjust to the loss in value caused by inflation.
          1. High gas prices in the 1970's caused a switch to small cars and many people
               bought wood stoves.
          2. Low gas prices in the 1990's made RV's less expensive to run.
      B. Debtors (homeowners, businesses, government) are helped by high inflation because
           they pay back with dollars worth less than those borrowed.
      C. Creditors are hurt by inflation as they are paid back in less valuable dollars.
           Those on a fixed income are also hurt by the cheaper dollars.
      D. Cost-of-Living Increases (COLA's) were instituted in the 1970's to negate
           the severe effects of that period's high inflation.
           For more information visit Cost of living from Wikipedia.
      E. Deflating GDP
          1. Inflation can be taken out of growth in GDP by expressing later year production
              at earlier year prices.
           2. This graph deflates recent GDP per capita data.
           3. In the following chart, letters Q, P and T are quantity, price per unit and total
               respectively.

Real Per Capita GDP

1980

1990

1990 Production
at 1980 Prices

Question: Which car was better. Why?

Send ou answer to
Professor A

Contributing Class will be recognized!
Fill in the blank.
So much for
______    ______   ______   _______.

Production

Q

P

T

Q

P

T

1990 Q

1980 P

T

Shirts

1

10

10

2

20

40

2

10

20

Movies

2

3

6

3

5

15

3

3

9

GDP

16

55

29

Note : Output more than tripled in "nominal" terms but in real terms output increased by 81.25% (29-16)/16

VII. Some question government procedures when calculating inflation and economic growth.
         A. Shadow Government Statistics
        B. Grossly Distorted Procedures explains how Hedonics is a way of accounting for the changing quality of products when calculating price movements.
            For example, today's computers are 2 to 3 times faster and have more memory 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 fallen? Here is another example.
            Is it realistic to compare the price of a 1955 Chevy with the price of a 2005 Toyota with air conditioning, DVD player, anti-lock breaks,
          seat belts, air bags, side air bags, power steering, power brakes, etc etc etc?. For a mathematical approach read Price Hedonics: A Critical Review.
          and A Note on the Impact of Hedonics and Computers on Real GDP.
         C. Financial Sense Online - The Core Rate
        D. Monthly Labor Review counters the Shadow Government Statistics arguments concerning inflation calculations
        E. W hat Inflation Means To You: Inside The Consumer Price Index by Doug Short of Seeking Alpha 12/12/16

VIII. Additional Readings
         A. Presidents and the business Cycle
         B. Only the Weak Survive import/export imbalances and the business cycle Nouriel Roubini, Project Syndicate (hat tip Mark Thoma) 10/15/10
         C. How the Government Dealt With Past Recessions
         D.
Business Cycles and Financial Crises

is extensive

Interesting Articles
Turning Which Corner? 05/11/09 -Tim Duy's Fed Watch

The Age of Balance Sheet Recessions: What Post-2008 U.S., Europe and China Can Learn from Japan 1990-2005

The Paradox of Thrift

What is-the real rate of interest telling us. Financial Times, Martin Wolf's blog, 3/19/12

Two Important Timelines and Two Interesting Graphs

America's Great Depression Timeline

Timeline of the Great Depression

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Free Internet Libraries improve grades and Careers.

Free Business Book Summaries 3 New York Times Bestsellers

From From Inflationdata.com

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Chapter 9 Homework Questions
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http://www.textbooksfree.org/Economics_23_Pure_Competition.htm#Is Purely Competitive Adjustment Causing a New Normal

	1980			1990			1990 Production at 1980 Prices			Question: Which car was better. Why? Send ou answer to Professor A Contributing Class will be recognized! Fill in the blank. So much for ______ ______ ______ _______.
Production	Q	P	T	Q	P	T	1990 Q	1980 P	T
Shirts	1	10	10	2	20	40	2	10	20
Movies	2	3	6	3	5	15	3	3	9
GDP			16			55			29
Note : Output more than tripled in "nominal" terms but in real terms output increased by 81.25% (29-16)/16
VII. Some question government procedures when calculating inflation and economic growth. A. Shadow Government Statistics B. Grossly Distorted Procedures explains how Hedonics is a way of accounting for the changing quality of products when calculating price movements. For example, today's computers are 2 to 3 times faster and have more memory 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 fallen? Here is another example. Is it realistic to compare the price of a 1955 Chevy with the price of a 2005 Toyota with air conditioning, DVD player, anti-lock breaks, seat belts, air bags, side air bags, power steering, power brakes, etc etc etc?. For a mathematical approach read Price Hedonics: A Critical Review. and A Note on the Impact of Hedonics and Computers on Real GDP. C. Financial Sense Online - The Core Rate D. Monthly Labor Review counters the Shadow Government Statistics arguments concerning inflation calculations E. W hat Inflation Means To You: Inside The Consumer Price Index by Doug Short of Seeking Alpha 12/12/16 VIII. Additional Readings A. Presidents and the business Cycle B. Only the Weak Survive import/export imbalances and the business cycle Nouriel Roubini, Project Syndicate (hat tip Mark Thoma) 10/15/10 C. How the Government Dealt With Past Recessions D. Business Cycles and Financial Crises is extensive
Interesting Articles Turning Which Corner? 05/11/09 -Tim Duy's Fed Watch The Age of Balance Sheet Recessions: What Post-2008 U.S., Europe and China Can Learn from Japan 1990-2005 The Paradox of Thrift What is-the real rate of interest telling us. Financial Times, Martin Wolf's blog, 3/19/12

Two Important Timelines and Two Interesting Graphs America's Great Depression Timeline Timeline of the Great Depression	Please Visit Our Sponsors Free Internet Libraries improve grades and Careers. Free Business Book Summaries 3 New York Times Bestsellers
	From From Inflationdata.com

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