Posted on 09/04/2012 8:21:08 AM PDT by SeekAndFind
I've heard a lot about the "four years ago" comparison. Four years ago, we were on the cusp of Don Luskin’s famous prediction (“... we're on the brink not of recession, but of accelerating prosperity.”), and Phill Gramm had two months earlier decried the ongoing “mental recession”. [0] It seems to me the more appropriate marker is the last election, in 2008Q4. We can then assess what the data tells us about 2012Q2 vis a vis 2008Q4.
Aggregate Measures of Activity and Income
First, I look to several measures in addition to the standard real GDP indicator. Note that I divide by population, in order to express the variables in per capita terms (thereby controlling for population growth). In the graph below, when the series lie above the horizontal line at zero, then the indicator exceeds its level at 2008Q4. The numerical value can be interpreted as the percentage deviation from 2008Q4 levels, in log terms.
Figure 1: Log real per capita GDP (blue), GNP (red), Net National Product (green), Gross Domestic Income (purple), all SAAR in Ch.2005$, normalized to 2008Q4=0. Source: BEA, 2012Q2 second release.
In other words, aggregate output and income measures on a per capita basis exceed levels recorded at the end of the G.W. Bush Administration. (Given population growth, obviously absolute levels exceed by an even greater extent). If one looks to production by American-owned factors of production (as opposed to factors of production located within the geographical confines of the Nation), then output growth is even more pronounced.
If one refers the first derivative, then the case for improvement is reinforced. Per capita GDP was declining 10.3% (SAAR, log terms) in 2008Q4, and rose 1.0% in 2012Q2.
Consumption and Household Net Worth
Consumption is the object typically thought of as the measure entering into the utility function. We do not observe consumption, but we do observe consumption expenditures. Per capita consumption expenditures is above levels of 2008Q4. Consistent with that finding, net household worth is also above corresponding levels.
Figure 2: Log real per capita consumption (blue), SAAR in Ch.2005$, and net household worth (red), normalized to 2008Q4=0. Source: BEA, 2012Q2 second release, and Fed Flow of Funds.
Clearly, both measures exceed those recorded at the end of the Bush Administration; per capita consumption was 2.8% higher, while as of 2012Q1, net worth was 7.6% higher. I find both results remarkable, given the fact that these indicators are often depressed after large financial balance-sheet induced recessions.[1]
The gradient is also relevant; per capita consumption declined 6.2% in 2008Q4, and rose 1.0% in 2012Q2 (SAAR, log terms).
The Private Sector
What about real compensation and productivity? BLS data indicate that both have risen.
Figure 3: Log real compensation (blue) and output per hour (red) in the nonfarm business sector, normalized to 2008Q4=0. Source: BLS via FRED, and author’s calculations.
The fact that real compensation is essentially at 2008Q4 levels is not encouraging. Nor is the fact that output per hour is far above compensation, as it indicates that a higher share of income is going to capital in the nonfarm business sector (this is confirmed by BLS data on the income share; it’s been decreasing since 2000 pretty much without stop). In this sense, the owners of capital have been doing particularly well. As an aside, on this Labor Day, it seems to me that measures that would allow labor to garner a larger share of national income are in order. Had the greater demand support measures been implemented, higher demand for labor would have induced greater upward pressure on wages. Unfortunately, additional measures to support aggregate demand have been stifled in the Congress.
Counterfactuals
As economists (actually, as sensible people), we should be interested in the difference relative to the counterfactual. The counterfactual (as well as conditioning) is a difficult concept for many people to understand, but I’ll forge ahead, using the CBO assessment of high-low range of impacts to determine the counterfactual level of GDP in the absence of the American Recovery and Reinvestment Act (ARRA). In my view, this range encompasses the range of multipliers associated with reasonable models of New Keynesian and Keynesian/neoclassical synthesis flavors.
< B>Figure 4: Real GDP (thick black), WSJ mean forecast from August survey (thick blue), counterfactual GDP w/o American Recovery and Reinvestment Act, low impact (green), and high impact (red). NBER defined recession dates shaded gray. Vertical line at 2008Q4. Source: BEA, 2012Q2 second release, WSJ, CBO (Aug. 23) Table 1, NBER, and author’s calculations.
While by either measure, the positive impact of the ARRA has diminished, it should be remembered that in 2010, output was substantially higher (and unemployment lower, between 0.4 to 1.8 percentage points) than it otherwise would have been. Just because it’s in the past, doesn’t mean that it doesn’t matter. Furthermore, the midpoint of the CBO range would place economic output in 2012Q3 0.4 percent above what it would have been in the absence of the ARRA. (For discussion of why one might expect multipliers to be at the higher end, see here).
(As an aside, note that even when one uses the pessimistic measures of multipliers, output would have continued to decline after 2009Q2 in the absence of the ARRA. I do wonder how sensible people can continue to say "the stimulus didn't work". Once again, to me, this is the triumph of ideology over empirics.)
WWRHD?
Or, what would Romney have done?
Finally, I think it useful to consider a regime that was completely laissez faire with respect to interventions should the economy encounter new challenges. We have one observation on Governor Romney’s policy perspective -- namely what should have been done with Detroit in 2009. He recommended letting the companies go bankrupt. [2] While auto manufacturing does not represent all of the US economy, it remains important (e.g., ) and so this policy prescription should be taken as an important indicator of his approach.
Figure 5 depicts how motor vehicle production and new vehicle consumption has evolved since Governor Romney’s admonition to let Detroit go bankrupt.
Figure 5: US motor vehicle output (blue) and consumption of new vehicles (red), in bn. Ch.05$. Dashed line at 2008Q4 (November 2008). NBER defined recession dates shaded gray. Vertical dashed line at 2008Q4 (Romney’s NYT OpEd). Source: BEA, Table 7.2.6U. Real Motor Vehicle Output, August 29, 2012 release, and author’s calculations.
In other words, the real value of production of motor vehicles is now 40% above those recorded in 2008Q4 (in log terms). Once again, one can think of the counterfactual. After an uncontrolled bankruptcy, in which no financing was available due to the contemporaneous financial crisis, would the auto industry have risen like a phoenix, outshining what we have witnessed thus far? It’s possible. After all, I ran a 45 second 440 in high school. Plus or minus 25 seconds... [3]
We all have seen a 40% inflation in our energy costs every year since 0 took office.
So spin as hard as they want, there is NO way to sell this notion that people are "better off" now then when Bush left office.
Without accounting for the devaluation of the dollar his analysis is flawed. Yes consumption in dollars has increased but the price of those items has increased as in a gallon of gas.
Nope. Went from a one income family to a two income family trying to equal what we had before.
Personal debt has increased as well.
Time to go all Dave Ramsey on it and clear it all out.
Where is the population verses employment graph?
The basis of all of this stuff needs to be tagged to inflation. You can use the government’s CPI, or you can use Gold. While there is a speculative nature to Gold, there is also the inability to hide things like the devaluation of the dollar which has been done quietly—but whose impact is great.
Also, no mention of National credit downgrades and record numbers on some form of welfare.
The university of Wi Madison. 35 square miles surrounded by reality. That explains the findings.
Things started going down hill when BHO got the nomination. Businesses KNEW things were going to end badly and they did. Only wish I’d have had the vision to get out of the market right then and there.
We’ve managed to climb back up IF you look at the Dow but then those dollars don’t quite add up. 144.00 barrel oil in July ‘08 and gas prices around 4 bucks a gallon, 100.00 or slightly under barrel of oil NOW and 4 bucks a gallon. Hmmm what would it be IF we had 144.00 a barrel now, 6 bucks a gallon easy.
Libs tout a 6-7,000 DOW in Dec. ‘09 vs. a 12K or so now DOW but they aren’t the same. Not by a long shot.
We’re doing ok, but we do live below our means and always have.
Americans saw wealth plummet 40 percent from 2007 to 2010, Federal Reserve says
http://www.washingtonpost.com/business/economy/fed-americans-wealth-dropped-40-percent/2012/06/11/gJQAlIsCVV_story.html
U.S. poverty heads toward highest level in 50 years
http://www.chicagotribune.com/business/breaking/chi-us-poverty-heads-toward-highest-level-in-50-years-20120723,0,5437495.story
The United States now ranks fifth, overtaken by Sweden and Singapore in the 2011-2012 rankings of the World Economic Forum’s Global Competitiveness report.
http://www.ibtimes.com/articles/209890/20110907/united-states-united-kingdom-sweden-and-singapore-2011-2012-rankings-of-the-world-economic-forum-s-g.htm
A Downgrade for Illinois-The worst credit rating aside from California
http://www.freerepublic.com/focus/f-news/2924482/posts
liberal economics works great everywhere it’s tried!
The question: Are You Better Off Than You Were at the End of the Bush Administration?
should be changed to: Are You Better Off Than You Were at the Beginning of the Obama Administration?
Since the electorate decided in September that 0bama would win the business community began acting in self defense. In other words 0bama should be blamed for all that took place from September and not November.
Household net worth per capita has risen, I do not think so.
It is a question that needs to be phrased better. In my case:
My income is up 40% since the last election. Made some sound job moves. A former CEO I worked for told me “Economy stinks, you are not going anywhere”. I had a new position 2 weeks later with a raise.
My household income is up 75% since the last election (wife went back to work after raising the kids).
Household debt eliminated except for mortgage.
Retirement savings has recovered and increased without additional deposits (companies stopped matching, I stopped contributing).
I opened up my own investment account that is valued more than the total of my deposits.
I have 6 months in cash expenses in a savings account.
I opened up education accounts for the 2 kids. Not a fortune, but will pay cash for first 3 semesters at an in-state school.
So, in my case, I am better off.
But, things are not great. I am having a hard time finding my next career leg up. The interviews I do get, they are only willing to pay peanuts, or just trying to harvest ideas from me without being willing to pay for them.
Being debt free is racis....
Over at Gretawire, she’s advising Obama to ‘convince’ the voters he’s had ‘strong’ leadership and that we are better off, now!
And they wonder why we think the media is biased??? In the tank....!
This is just like every classic abuse of mathematical and statistical analysis. (1) The numbers should be normalized for population and inflation, not just for population. (2) The “multipliers” used for Keynesian economics are only those from fans of Keynes. Many experts believe the true multipliers are less than 1.00, in which case the counterfactual outcomes without Stimulus would have been better than with Stimulus. To use a range of Keynesian multipliers in evaluating a Keynesian stimulus and then conclude that the stimulus worked is absurd. There are many other fatal flaws in his math, but that’s a good start. This guy is creating propaganda - knowing as he does it that he is lying - or he is an idiot who is too stupid to be permitted to teach our children.
Oops. Sorry. But at least my debt hasn't driven me to welfare.
Oh, dang! Did it again. Sorry. Good thing I don't live in Chicago or I'd get in trouble. What? I did it again?! Dang my racist hide!!!
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