Chapter 9 The Business Cycle 6/15/22

Inflation Update 8/13/22

I. The Business Cycles 5 video

II. History 8 videos

III. Unemployment  6 videos

IV. Inflation

V. Are Wages Stagnant? 1 video

VI. Readings

VII. Visual Learners  Please Share

Related Quick Studies

FED's Forecasting Game

M. Blyth: Latest The New Normal 1/14/21

Chapter 9 Test Review 

The Covid Effect
Workforce 8/21
Supply Chains 11/121
Inflation 11/21
China, COVID, and Manufacturing - 12/20/21

I. Business Cycle: Fluctuating Business Activity

   A. Fluctuations follows a cycle

   B. Recession: two  consecutive quarters of negative Real GDP

   C. Is GDP a good measure economic success? 


2022 Seeing Slowdown



Expansions Tend to be Longer

We Had a Great Moderation

Then a Slow Period

Output Gap = Actual GDP - Potential GDP
Continued Too Long

After CV Shutdowns
We Spent Much to Recover

After the Great Recession  Good Jobs Slow to Returned
 Fiscal Policy Larger fro Covi9-10

D. Causes
1. Inventory Recession: Excessive optimism causes inventories to over expand and
    eventually be worked down causing a recession. Computers have made easier to
    track inventory and made this type of recessions less likely. 
2. Endogenous Shock not foreseen by economic models oil embargo recessions of the 1970's.
3. Rolling Recession 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.
4. Balance sheet recession: private sector debt causes a focus on paying down debt
    which lowers aggregate demand and substantially lowering economic growth.  
    a. Causes 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 resort 
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 guilty.
     b. Some feel Chain's authoritarian government which has successfully navigated growth
         for 30 years will again steer clear of catastrophe but  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 D3 for math people.
8. 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)
       1) Long Waves Theories of Development from Professor Kunter Krumme,
       2) Call this a Recession, At Least It is Not the Dark Ages

3) Generations and The Fourth Turning
9. National Bureau of Economic Research determine recessions
10. David Rosenberg key policy determinates
      a. Real Business Sales
      b. Industrial Production
      c. Organic Real Personal Income: PI  excluding government transfers
      d. Employment
inflation matrix excluding imputed government adjustments
11. Abbott and Costello Explain the Unemployment Situation
12. Action to Stop Recent Recessions, NYT

E. Cycle Theory videos
    1. Monetarism                
    2. Keynesian
    3. Real Business Cycle
    4. Austrian
    5. Hyman Minsky

    6. Big Cycles Over Last 500 Years

Economy Strong But Slowing 1/30/20







GDP is made up of:   Y = C + I = G + (X-M)      where Y=GDP

C=Consumption, I=Investment, G=Government

Spending, (X-M)=Net Exports, X=Exports, M=Imports*.  

GDP in this overview, unless explicitly stated otherwise, refers to real GDP.
 Real GDP is in chained 2009 dollars.






E. Post WW 2  Cycle Analysis

Competitive Adjustments

2. Good Jobs Gone

3. Severe Recessions

4. Great Recession

5. Great Recession

6. Market Bubbles

Big Cycles Over Last 100 Years


Is Demography the Destiny of Growth?




CV-19 hit Services and Investment Hard


       f. Recoveries Can Be Slow and Weak

Historical Length of Recoveries - Click to enlarge

chart-book-the-legacy-of-the-great-recession source=CBPP


See Our Studies
The Financial Crisis

Most Severe US Recessions

2015 Political Economy Controversies

Action to Stop Recent Recessions, NYT

Bubbles Credit And Their Consequences FED

Democratic Capitalism vs. Capitalistic Democracy 

Editor's Note: The ten year recovery was the 1990s. The Vietnam expansion of the 1960s. The longest was after WW2 and included the Korean War. Does anyone want to invade Clinton or Trump to increase and extend current recovery by Syria plus bringing back the draft?

G. Predicting Recessions

     1. Leading Indicators of Recession







Understanding Contrary Indicators  

     3. Recessions Using Excel Charts

Source econintersect.com:Leading Economic Index Sharply Improves

Soft Data Much Brighter Economic Outlook vs. Hard Data

Leading Indicators Links

Economic Forecast Outlook Barely Positive is extensive with many graphs 2/16

Leading Economic Indicators 2007/01/leading-economic

Index of Leading Indicators – Premature to Rule out Recession  5 19, 08

LEI and KRWI - It's Different This Time? P. Kasriel Northern Trust, 4/21/07


Leading indicators a short history of the numbers that rule our world 2/14 NYT

The Evolution Of Economic Indicators





Over 12,000,000 Filed Over 2 Weeks

So We Spent $13 Dollars, Much was Saved.


Unit I. Review peak economic activity, recession, recovery, expansion



II. History of the Business Cycle

A. Overview
1 Most Severe US Recessions

2. A Brief History of U S Banking will provide examples of what has
caused the business cycle in the United States.

3. The Financial Swindle-of-All-Time

4. The first financial panic
    a. Causes of the 1837 Panic
    b. Panic of 1837
    c. Effects of Panic of 1837
5. S&P earnings cycles
    a. Part 1: 1871 - 1900,  Source
    b. Part-2-1900- 1925
    c. List of U.S. Recessions
    d. Business Cycle data since 1854 from NBER

Recessions are less frequent and Milder




B. Top 10 Worldwide 20th Century 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 have 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 was not good a 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 price increases cause recessions

C. The Long Depression And Panic Of 1873

D. Great Depression by Robert J. Samuelson,
1. Amity Shales on the Great Depression 

The Great Depression, On EconLog and in his column at TCS
Daily, Arnold Kling also added insight to Shlaes's observations
2. Did France Cause the Great Depression
3. What Caused the Recession of 1937-38?
. The Battle of Smoot-Hawley The Economist 12/18/08
Understanding the Great Depression 9 min video

D. Post WW 2 Business Cycles
1. Post WW2 International Economic Competitive Adjustment
2. The Great Recession
3. Financial Crisis of 2007-10 Course
U.S. Normality Changes with 7 Competitive Adjustments 1945-2015

E. Videos
1. Black Monday - Part 1 - Nightly Business Report Oct.19, 1987 video
. Black Monday - Part 2 - Nightly Business Report Oct.19, 1987 video
. Black Monday - Part 3 - Nightly Business Report Oct.19, 1987

F. Bubbles Credit And Their Consequences FED looks into predicting bubbles
G. Videos and graphs
1. American-Experience 29 Crash
2. South Sea Bubble of 1720 video
    3. Tulip mania: the classic story of a Dutch financial bubble  
4. Great Recession Slow Recovery Videos
Episode 1  2
H. Economic Cycles Before the Fed | Thomas E Woods, Jr. Austrian School



CV-19 Affect was Great-Counting Was Affected



I. Economic Normality Changed Seven Times 1945-2015
         1. Rising Income
         2. Foreign Competition Began 1970's Wage Stagnation
         3. 1980's Bring Less Financial Regulation, Slow Wage Growth
         4. U.S. Financial Bailouts and Economic Recovery
         5. Poverty Stuck at 15% Since 1984
         6. Profit Growth Beats Wage Growth in New Century

         7. Wellbeing Continuing Growing

Great Recession on top of Two Bush Wars
and Medicare Part D Caused Problems

1 of 10 scary-2017 Charts


Recovering from Great Recession Videos  

Video 1 establishes recovery actually has been weak, even compared to other
recoveries following deep recessions and financial crises.

Video 2 examines the possible causes of the weakness.

Video 3 concentrates on in my view, is the main cause—government economic policy.

Sources Econ 1 Blog and
First Principles: 5 Keys to Restoring  America Prosperity




Stocks Up Wages Down-What  It Mean/

III. Unemployment

CV-19 Economy Shut Down

We're Back



  For Visual Learners      Four Videos Structural and Frictional    Cyclical     Natural      Generation Jobless 











               d. Okun's Law and the Great Recession 3/28/12
               e. Okun's Law, Labor Markets in Global Financial Crisis
          4. Labor Force Participation Rate from The Big Picture blog.
          5. Noneconomic costs of unemployment include skill loss
          6. Discouraged workers leaving the workforce lowers
              unemployment. first 2 charts courtesy of Gluskin Shef
        7. Q&A: Unemployment Extension WSJ, 11/18/10
          8. Gallup has Higher Unemployment and Underemployment
              than the government. 04/01/11
          9. The Government Manipulates Unemployment Statistics  
              D. R. Amerman  3/12
        10. Videos-negative effects of minimum wage on employment
  C. Readings

Creating Jobs and Economic Security 3/27/18       
        2. Economics of
Minimum Wage
        3. New Study Proves Seattle's High MW Punishes Poor
Sticky Wages Hold Back Job Growth WSJ, 11/12/10
        5. Exploring Different Unemploymnet Risks

6. Employment Multipliers-US


Unit III. Review Unemployment causes frication within employment process, structure problems, cycle effects

"What is Unemployment







  • U-1 counts 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 unemployment.
  • U-2 counts 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 unsatisfying job.
  • U-3 is 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-4 is 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 for them.
  • U-5 is 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-6 is U-5 plus those who are working part-time but would prefer to work full-time.
  • Raising the minimum wage and expanding the earned-income tax credit can reduce deaths of despair among the working class.

    National Bureau of Economic Research working paper.

    More Unemployment Data

    Great Recession Was Not So Great

    Unemployment Rate 



    Great Recession: Deep, Quick and Slow Recovery
     Became the Longest in History

    2007 Finally Recovered.

    2019 Great Recession Chart Book

    Bad But Getting Better




    Unlike the1930's Depression, US Has A Federal Safety Net

    Editors Note:

    The calamity of the1930 resulted in federal programs   like food stamps, Medicaid, Medicare, Social Security and TANF to help the unemployed began arriving in the 1960's.

    Will COVID-19 be a Big Time Turning Point?



    Chart 2: Unemployment Rate by Type of Previous Job


    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. wikipedia be a bit of a stretch?  See 16) Stagflation and the Rise of Supply-Side Economics

    NYT 5/28/12

    North-Caroling crushes unemployed 12/17/13
    Arguing Over Extending Unemployment Benefits  12/14/13

    Europe's Furlough Unemployment System
    Will be Tested in Fall of 2020

    In US Worker Lose Jobs and then FEDS
     increase Safety Net

    US system hurts worker self-esteem but many feel it is more efficient



    See Post Covid Inflation


    Unit IV. Review  Inflation caused by Demand Pull or
    excess demand and Cost Push or low supply








    Short   See http://0Trends

    Dollar Buys Less on World Markets


    Recent Cycles


    Some Feel Inflation Overstated
    Because Quality Increases
     Difficult to Measure.


    Formed in 1913, the Federal Reserve took a while to learn its job.







    So Far, the CV-19 Recession Looks Like Great Recession




    V. Are Wages Stagnant?  Real Median Compensation Reveals Answer







    Problems With Economic Measurements Over Time video




    CPI results in lower wage growth than PCE
    Too many Use the CPI to show low wage growth
     to get elected, get funding for research

    50 years ago i learn CPI was used to adjust government waged to cover inflation. Change, took 10 years. Still waiting for SS to change.


    Editor's Note: This paper by Bruce Sacerdote is worth noting:



         Unit V. Review
    Popular media, out of work politicians and low income earners believe so.

    Worker Compensation has Increased Even More

    Productivity and Compensation Growing Together

    D. Income inequality in the United States: it’s flatter than you may realize (Phillip W. Magness)  Magness reviews distortions introduced in Piketty-Saez analyses by incorrect treatment of U.S. tax laws in their calculations.  Magness has constructed what he says is a corrected income distribution curve for the U.S.  Econintersect:  Of course, none of this impacts wealth distribution which also has gone through extreme swings.




    Editor's Note: 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 years 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 been eliminated."  

    "The Chained C-CPI-U is another step toward eliminating the substitution bias remaining in the CPI-U and CPI-W. Source As of 2005 the BLS reports  "The C-CPI-U 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 ...




    VI. Misery Index and Long-Term Secular Trends
            A. The Misery Index is the sum of the unemployment the inflation rates. 
                     It is a low 8.1% by historical standards with an average of 9.5% since 1948.




    Inflation Often Determines Interest Rates

    Recent inflation data provided
    by the Department of Labor and an
    Interactive graphic at the St. Louis Fed.

    Interest Rates Since1800 What's Next?


    Source nice graph useless analysis


    Real Per Capita GDP The Best Measure of Our Economic System

    Editors Note:


    Some Fear the Worst



    B. Macroeconomic disasters since 1870
    C. Timeline Collection
       1. America's Great Depression
    . Timeline of the Great Depression
       3. GB, France, US and Canada
        4. Long-Term Graphs 

    Discretionary Spending is Down Because Voters
    Want Economic Growth to go to SS and Medicare











    People Will Always Think Prices Are Too High



    Stock Prices Continually Up


    Reason Is Profits Are Continually Up


    Interest Rates Were Constant Until Because We Print Money
     and Borrow to Buy Voters Instead of Party Bosses
    A Flat World Stopped This and Profits Beat Wages


    Bubbles Continue to Hurt






    VII. Additional Readings
    A. Presidents and the Business Cycle
    Only the Weak Survive import/export imbalances and the business cycle
                 Nouriel Roubini, Project Syndicate (hat tip Mark Thoma) 10/15/10
    How the Government Dealt With Past Recessions from the New York Times  
            D. Lessons From the Forgotten Depression 1921: The Crash That Cured Itself
    Business Cycles and Financial Crises is extensive
    What Inflation Means To You: Inside The Consumer Price Index by Doug Short
              G. Tax by inflation  by David John Marotta  3/24/14  of Seeking Alpha
            H. Turning Which corner? 05/11/09 -Tim Duy's Fed Watch
     The Age of Balance Sheet Recessions: What Post-2008 World Learn from Japan
    The Paradox of Thrift
    K. What is-the real rate of interest telling us? Financial Times, Mart in Wolf's blog
    Wrong: Nine Economic Policy Disasters and What We Can Learn From Them

    chart of the day, jobs chart, september 2012

    Last Chapter Next Chapter 
    Chapter 9 Homework Questions Table of Contents

    For Visual Learners


    Recessions Shorter, Expansion Longer




    Overall employment is surging.




    source has much more recent data



    Stock Prices

    ritholtz.com  longest-bull-markets-modern-era/



    Government Support Is Everywhere




    What is a Commodity Super Cycle?


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    US Recessions Chronology

    Most Severe US Recessions
    The Great Recession 3 p
    Great Recession: Historical Perspective
    Post WW 2 US Economic Adjustments
    Post WW2 International Economic Adjustment
    Global Economic Growth and the Rise of Populism
    Western Civilization Economic History
    History of Stock Bubbles