s

Chapter 9
The Business Cycle

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
Related Quick Studies
FED's Forecasting Game
M. Blyth: Latest The New Normal 1/14/21
Chapter 9 Test Review 

CV-19 Recovery Prediction

I. Business Cycle: Fluctuating Business Activity

   A. Fluctuations follows a cycle

     B. Recession: common definition is two
         consecutive
quarters of negative Real GDP

   C. See Is GDP a good measure economic success? 

 

We Had a Great Moderation

Output Gap = Actual GDP - Potential GDP
Continued Too Long

After the Great Recession
 Good Jobs Slow to Returned
 
Could be Worse after CV-19 Recession

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
      e.
inflation matrix excluding imputed government adjustments
11. Abbott and Costello Explain the Unemployment Situation
12. Action to Stop Recent Recessions, NYT
1p

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+{\left(X-M\right)} 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.

Opps

 

 

 

 

E. Post WW 2  Cycle Analysis

1.
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?

economicpopulist.org 

 

 

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

 

 


     2.
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

RECESSION IMMINENT?  LEI AND KRWI ARE FLASHING WARNING

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

 

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. rt-2-1900- 1925
c. List of U.S. Recessions
d. Business Cycle data since 1854 from NBER
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

 
B. The Long Depression And Panic Of 1873

C. 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?
4
. The Battle of Smoot-Hawley The Economist 12/18/08
5. 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
4.
U.S. Normality Changes with 7 Competitive Adjustments 1945-2015

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

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

 

 

III. Unemployment

 

 

Jobs Coming Back Slowly

 

 
              

  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 the Global Financial Crisis
          4. Labor Force Participation Rate from The Big Picture blog.
          5. Noneconomic costs of unemployment include loss of skills,
              &n this problem in late 2012)
          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. How The Government Manipulates Unemployment Statistics  
              D. R. Amerman  3/12
        10. 2 Videos on negative effects of minimum wage on employment
  C. Readings

        1.
Creating Jobs and Economic Security 3/27/18       
        2. Economics of
Minimum Wage
        3. New Study Proves Seattle's High MW Punishes Poor
        4.
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

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 simply not be working. But this definition of unemployment does necessarily define (1) whether someone who is underemployed 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:

  • 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.

These various interpretations 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."

Raising the minimum wage and expanding the earned-income tax credit can reduce deaths of despair among the working class. "A 10% increase in the minimum wage reduces non-drug suicides among adults with high school or less by 3.6%; a 10% increase in the EITC reduces suicides among this group by 5.5%. ... Our estimates suggest that increasing both the minimum wage and the EITC by 10% would likely prevent a combined total of around 1,230 suicides each year," William Dow, Anna Godøy, Christopher Lowenstein and Michael Reich write in a 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

part.time.plus.unemployed.annotated.600x480

source

 

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

 


       
        

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

 

Figures 1 and 2

 

 

 

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

 

 


/econintersect.com/
 

V. Are Wages Stagnant?  Real Median Compensation Reveals Answer
   

 

 

 

 

 

 

 

 

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 over inflation. Change It took 10 years. Still waiting for SS to change.

         
       4.
Problems With Economic Measurements Over Time 5 min video

            

The CPI-U-RS index allows consumers to changing buying habits to find lower prices. This increased wages by 15 points with  and 29 points with PCE A.

While the Federal Reserve considers the PCE A the best for measuring the affects of inflation, many use the others bringing truth to the statement their are liars, darn liars and statisticians. 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 ...

 

The Good Old Days Were Expensive

1964 TV's Were
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!

the-magic-of-the-global-marketplace-and-the-miracle-of-global-manufacturing-christmas-1964-vs-today/

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.
 

  

Image result for misery index graphs

 

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
   2
. 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
        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 from the New York Times  
        D. Lessons From the Forgotten Depression 1921: The Crash That Cured Itself
        E.
Business Cycles and Financial Crises is extensive
          F.
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
        I.
 The Age of Balance Sheet Recessions: What Post-2008 World Learn from Japan
       J.
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

 

 

 

Image

Overall employment is surging.

 

 

Inflation

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?

 

Related Quick Studies
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