Well, not entirely. Ed Morrissey has some thoughts.
This is what happens when you put in place either economic incompetents, people who actively want to wreck the economy for their own political ends, or both. There are, after all, people who would rather rule in Hell than serve in Heaven.
[Update a few minutes later]
John Kerry was extolling the stimulus effects of unemployment benefits, as in more money returns to the economy for each dollar paid out to the unemployed. If so, why not simply put us all on unemployment benefits and watch the economy grow?
Or perhaps Kerry could advocate a national boat sales tax to collect the sort of revenue that he so carefully had tried to avoid. Or perhaps he might look carefully at zillionaire family trusts and the billions they divert from the strapped federal Treasury. Or perhaps he could take away the tax deductions on third or fourth homes above a certain square footage, maybe ending the deduction for property taxes on multiple homes?
My point? Why do Democrats always go after the orthodontist, electrical contractor, or insurance agency owner, and never the Buffetts, Kerrys, or Gateses? Bill Gates and Warren Buffett will defer more money from the federal Treasury by avoiding inheritance taxes (to channel their profits into their foundations) than all the billions lost this year by keeping tax cuts for small businesses.
Part of the problem is that these new aristocrats aren’t really liberals.
How many of the root causes of this recession been fixed?
In the Agora contributor Eric Seymour says the curves resemble Gaussian functions: “This time around, it took about 23 months to hit bottom, and so it should take about the same amount of time to get back to normal. If this holds true, we may be on the verge of strong job growth, and the recovery should be complete in late 2011.”
http://www.intheagora.com/archives/2010/12/can-you-gauss-when-the-recovery-will-be-complete/
Considering that the commodity at the heart of the crisis – real estate – is highly illiquid, I’m not so optimistic.
Considering that the commodity at the heart of the crisis – real estate – is highly illiquid, I’m not so optimistic.
Isn’t that why there is talk of demolishing some of that real estate? The broken city block fallacy so to speak.
One thing I find interesting here is that the time constant of recessions – of the business cycle in general – seems to have been increasing since the seventies – recessions set in more slowly and last longer. Look at the 1990 and 2001 curves – the 1981 curve also hints at it, and more than hints if you consider it and the 1980 curve as a single recesssion (which it sure seemed like at the time.)
When I first noticed this trend a few decades ago, I hypothesized that modern computer inventory controls were reducing business inventory overshoots and thus reducing depth and increasing length of recessions. This latest 2007 curve makes me question whether depth is indeed reduced by whatever’s causing this change – the alternative is that this latest downturn would have been REALLY bad, Great Depression bad, absent that cause (whatever it is.)
Reduced amplitude trend or no, the increased period of more recent recessions seems hard to argue with. Not having studied economics all that deeply, I can but speculate on causes. Increased government regulation slowing things down? The aforementioned improvements in business inventory controls? Something else entirely?
I’d be interested in seeing more informed explanations for this data. Given the depth of the current trough, anything that might provide better insight into modern recessions could be useful indeed.
Henry, it’s a common economic argument that since the 19th century ever increasing government attempts to command the economy have lengthened and in some cases deepened recessions.
The argument is essentially that government can’t know what it’s doing, so its actions are more or less the same as a witch doctor attempting to cure a bout of malaria by trying random stuff — bleeding the patient, blistering his head, feeding him pureed bats mixed with the menstrual blood of virgin rhinoceroses, whatever suits the current theory o’ the month.
If any of things actually help, it’s by pure accident, and the overall effect is to give the patient two problems from which to recover: the disease and the witch doctoring. Not surprisingly, that takes longer.
“..attempting to cure a bout of malaria by. . .feeding him. . . with the menstrual blood of virgin rhinoceroses..’
Attempting? You mean, that DOESN’T cure malaria?
Crap…
Carl, no argument here that government action can deepen recessions. The 2007 canyon-curve being a graphic example… But “since the 19th century” misses my point: This dataset seems to show a clear break: 1948 through 1974, recessional employment dips lasted one to two years. From 1980 onward (taking ’80-’81 as a single recession) the dips have lasted three to four years. What changed between 1974 and 1980?
Or rather, of the myriad changes 1974-1980 (I was first out on my own in late ’73; I had a front-row seat) which caused recession lengths to suddenly double? “Government attempts to command the economy”, fine – but which ones?
Henry
Well one ongoing change since WWII is globalization, and American deindustrialization and greater dependance on foreign energy supply. For example I believe the 1973 recession was kicked off by the OPEC oil embargo related to the Yom-Kippur war.
Well, Henry, I’m not sure you’re attempting to read too much into noisy data. The only obvious conclusion to me is that, over time, the length of recessions has lengthened. There’s a lot of jiggle undoubtably caused by different conditions in the rest of the world, different underlying causes (e.g. misallocations of capital can be quickly or only slowly correctable), and different political responses.
But if I had to take a crack at a theory that points to your interpretation, I would say it was in the late 70s and early 80s that monetarist fiddling replaced financial fiddling. That is, that was about the time when command economists and government started trying to “fix” the economy not by fiddling with taxes and spending, but with interest rates, through the credit market, using the Fed. They could do that because it was only in the 70s or so that people started widely using credit instead of savings to spread out their purchases, and the whole concept of “leverage” moved from a tiny number of large corporations and big banks down into the decisions of ordinary folks and small businesses.
What you might conclude, then, is that the damage you can do to an economy by witch doctoring its credit markets is more long-lasting than the damage you can do by stupid tax and spend policies.
That doesn’t strike me as implausible. The thing about taxes and spending is they have their biggest impact now, and their effects rapidly trail off with time. If I foolishly buy an HDTV when I’m having a hard time paying the rent, the biggest impact to my life occurs right now. As time goes on, the ill effects tend to wear off. Similarly, if the government taxes my business out of existence, I can start a new business out of their sights next year and prosper.
On the other hand, when you screw up credit decisions, their biggest effect can be long down the road. If I buy a house I can’t afford on artificially cheap credit, hoping to flip it, the evil effects won’t hit me hardest until the real estate market implodes a few years later. On the business side, if the Feds monetary policy causes nasty inflation, or deflation, it can distort business decisions and restrict healthy capital flows for years to decades (as it did, e.g. in the 1930s here and in Japan in the 1990s.)
Carl,
I also am not sure I’m not trying to read too much into noisy data. It’s certainly easy to do. A limited set of noisy data, moreover – it’d be interesting to see similar unemployment curves for recessions going further back, as well as curves for the associated periods of negative economic growth.
That said, you make an interesting speculation on the possible correlation between the widening of recessions post-seventies and the increased government fiddling with credit availability around the same time. Another thought on that – it’s possible both might be symptoms of a third, root, cause: The increase in general use of credit (that you also mention) may be a factor in reducing the rates of decline and recovery. Access to credit can delay the bad effects of a recession, and getting overextended on credit is a common problem even in recessions that weren’t caused by government-forced overexpansion of credit. Greater use of credit in general should, I think, delay both decline and recovery. Another related thought is, changes in bankruptcy laws may also have affected recovery rates.
All interesting speculation, but again, not being an economist, I’m not likely to pursue it much further. Thanks for joining in!