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Friday, May 27, 2011

GDP Revisited - Part 2

Part 1 can be found here.

This look is at "Percent Change From Preceding Period in Real Gross Domestic Product, Seasonally adjusted at annual rates," whatever in the hell that means.  Some things you just take on faith.  Data is from BEA.

This is what it looks like.

The Quarterly number jumps around a lot.  The green line is a period average up to 1980, the red line is a period average post 1980.  The yellow line is an 8-year moving average. 

Here is my narrative, vis-a-vis the Great Moderation - which, if you recall, is the decrease in standard deviation in the data set, since roughly 1980 (give or take about 7 years.)  This is more correctly viewed as The Great Stagnation (a phrase I coined independently, months before Tyler Cowan's e-book of the same name was issued.)

In the 50's, there was a lot of economic turmoil, as the economy restabilized during the first wave of the baby boom and about 7 million soldiers reentered the work force (from 1945 to 1947) following WWII - which came hard on the heels of the Great Depression.  There were wild growth peaks in 1950, '52, and '55, along with recessions in 1953, '58, and '59-60.  Then came the First Little Moderation  - a decade without a recession, until late in 1969.   The 70's brought stagflation, the end of the Viet Nam war, and wild gyrations - though, except for one spike in 1978, and the recession of 1980, not as wild as the '50's. Reagan's profligate voodoo spending held recessions at bay after 1982, though the buzzards came home to roost in 1990, putting Poppy Bush in rather a bad light.   Clinton fought the head wind and gave us the Second Little Moderation, but his policies were too conservative to rekindle anything like a golden age (I call it the bronze age.)  The wheels were about to come off the Clinton psuedo-prosperity anyway, but the insane economic policies of the Shrub administration threw us farther over a deeper cliff than was necessary.  Shrub's spending made Reagan look prudent, and gave us an anemic and declining series of mini-peaks, culminating in the the crash of 2008.  B. Hoover Obama and an utterly idiotic Rethug dominated congress have given us a weak recovery with little hope for significant improvement - ever!

Here is a look at some trends - declining peaks in the 50's, 70's, 80's and noughts, but except for the Little Moderations, no systematic trend in milder bottoms.  During the first one (Kennedy-Johnson,) successive bottoms were about flat, and actually trended up during the second one (Clinton.)

A best fit line throught the entire data set has a downward slope.

Here is a look at the Standard Deviation of the data set.  This is based on 34 quarterly data points.  Also illustrated are 21 point (red) and 55 point (green) Std Devs, just to show that there is nothing special about choosing any particular data kernel size. 

That was no joke about The Little Moderation, as Std Dev fell sharply through the 60's.   After that, there was a steady increase until the early 80's, when there was another sharp drop.  Since then, it's been flatish, with some wiggles.   Even the '08 collapse only shows up as a blip.  So, the whole story of earlier high standard deviation can be explained as the post war readjustment of the 50's and the stagflation of the 70's.

As I've stated before, The Great Moderation is a data artifact of declining economic growth.  Now I can modify that by saying that the period before 1980 had two sub-periods of extraordinarily high Std Dev - the 50's and the 70's.   The whole Great Moderation idea is pretty much a sham, resulting from failing to take a serious analytical look at the data.  The Great Stagnation, however, is very real.

Here's one last look, with the data color coded by administration, and illustrating the moving average along with an envelope one Std Dev above and below the average.

So - what do you think?  Am I all wet?  Do you have a better narrative?  Did I miss anything?


The Arthurian said...

Your narrative explains the economic turmoil of the 1950s, but does not seem to account for the rise of stagflation.

This is important to your story: So, the whole story of earlier high standard deviation can be explained as the post war readjustment of the 50's and the stagflation of the 70's.

Stagflation is significant also because it was not explained by the Keynesian economics of the day, and it led to abandonment of the Keynesian approach.

Jazzbumpa said...

Stagflation is also unexplained by classical economics. Why there was a return to earlier ideas that had been shown inadequate for decades, and even more inadequate by the 70's is very mysterious to me.

Keynesian economics was intended the broaden the scope of applicability for economic theory, and succeeded.

I'm not sure if any theory can truly accommodate stagflation.

What is clear is that when policy abandoned Keynes for voodoo, things went completely to hell.


The Arthurian said...

"I'm not sure if any theory can truly accommodate stagflation."

It's rather a fundamental problem, don't you think?