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h put a second line on it and have the second line show the inverse turn the ratio upside down graph 2 rate to level blue and level to rate the one line starts at 1 6 and ends at 0 6 the other starts at 0 6 and ends at 1 6 pure coincidence anyway these days throw a million people out of work and it adds about 0 6 to the unemployment rate these days for each 1 the unemployment rate goes up figure it means an additional 1 6 million people are out of work so when the unemployment rate increased by 0 9 from 3 5 to 4 4 it meant that 0 9 times 1 6 million people about 1 44 million people had lost their jobs at april 17 2020 1 comment email this blogthis share to x share to facebook share to pinterest thursday april 16 2020 timothy taylor on joshua gans and the pandemic economy tradeoff a covid 19 two pronged choice production possiblity frontiers at conversable economist definitely worth a read plus taylor links to gans s book which is freely available on line in the future when people are looking back to see what was known and argued when the pandemic was hitting this book will be a natural starting point and for the rest of us this framework helps to explain issues like why the social distancing rules were put in place so abruptly why trying to take a half way approach to social distancing would have probably imposed lots of economic costs with few health gains and why choosing to prioritize health helps to avoid the drift that would otherwise occur as the pandemic evolved at april 16 2020 no comments email this blogthis share to x share to facebook share to pinterest wednesday april 15 2020 to your health it was news the other day that the curve was flattening new york and other us states plan for reopening as covid 19 cases plateau new york by far the hardest hit state will work closely with nearby new jersey connecticut delaware pennsylvania and rhode island to devise strategies for jointly easing stay at home orders imposed last month to curb coronavirus transmission to judge by media reaction people took this as good news and it is good news but that doesn t mean it s time to close the distance it means it s not getting any worse but it also means that right now at the plateau risk of infection is the worst it has ever been go the distance at april 15 2020 no comments email this blogthis share to x share to facebook share to pinterest labels gothedistance monday april 13 2020 life expectancy and the spanish flu totally out of context from scott alexander in 2017 at april 13 2020 no comments email this blogthis share to x share to facebook share to pinterest sunday april 12 2020 making america great again at april 12 2020 no comments email this blogthis share to x share to facebook share to pinterest saturday april 11 2020 how long will the relief check last at the st louis fed how long will the relief check last short to the point and better than i imagined at april 11 2020 no comments email this blogthis share to x share to facebook share to pinterest friday april 10 2020 initial claims thru 4 april initial claims for unemployment at least it s not a bigger increase again at april 10 2020 1 comment email this blogthis share to x share to facebook share to pinterest thursday april 9 2020 the century foundation old news now i guess but tcf on 31 march said what s been on my mind we anticipate in april the largest one month spike in the unemployment rate in history which underscores the critical importance of extending support to working families and those who have recently lost their jobs the cares act passed by congress last week which broadened ui eligibility and increased weekly unemployment benefits by 600 along with providing direct cash payments to americans was a good and needed first step but given the scale and scope of the current crisis much more is needed to give relief to struggling families to struggling families yeah and to the economy if they throw enough money at people they can keep economic forces from compounding the sharp decline created by our response to covid 19 if they don t we re in a world of shit at april 09 2020 4 comments email this blogthis share to x share to facebook share to pinterest tuesday april 7 2020 quarterly changes in the unrate quarterly changes in the unrate the increase in unemployment associated with recession typically takes time to build up this is most easily seen in the 1949 the 1974 and the 2009 recessions but pretty much all the recessions show the same pattern of gradual or at least non instantaneous increase but here we are in the first covid recession hopefully the only covid recession with an instantaneous spike in unemployment that is as big as the biggest increase of the 1975 recession and that was definitely a bad one does this mean the recession that we are falling into just now will be a big bad one jamie dimon thinks so but as the graph shows unemployment has not been building up it took a massive leap because everybody all at once reacted to the covid 19 during the last half of march okay maybe not everybody maybe during the first half of april the massive covid layoffs will continue but that should be it as far as the response to covid 19 is concerned after that we have to go back to the economic consequences of the march and april layoffs the typical buildup effects it is easy to picture a buildup like we saw in the 1949 or 1974 or 2009 recessions only on a massive scale because the first small step this time was so very large easy to picture but not necessarily correct from the october 1973 low of 4 6 it took until july 1974 for the unemployment rate to climb 0 9 percentage points between february and march of 2020 one month unemployment climbed 0 9 percentage points one month instead of eight months from the may 2007 low of 4 4 it took until april 2008 to reach the 5 0 level an increase of 0 6 percentage points and another month to reach 5 4 eleven or 12 months that time one month this time if it normally takes 8 months to a year for the unemployment rate to rise as much as it did between february and march of this year then we simply don t have enough people employed to allow the sort of unemployment buildup that we normally get on the massive scale suggested by the march increase it s not going to happen it should be obvious that the march increase was so big not because a recession was developing but because we are shutting down the economy in order to fight the pandemic granted shutting down the economy has consequences at april 07 2020 1 comment email this blogthis share to x share to facebook share to pinterest monday april 6 2020 the social distancing recession as you know in the past two weeks ten million people signed up for unemployment the typical number before two weeks ago was was less than a quarter million per week so 10 million versus half a million wow egad what s going to happen to the economy how bad will the recession be i expect you ve heard of okun s law okun s law says you can tell what effect a change in unemployment will have on economic growth so if unemployment increases by ten million people or by 20 million or however high it goes in the next few weeks we can estimate how much gdp growth will slow down and how bad the recession will be we ll look into that today i ll be using the growth rate version of okun s law from an old 2006 pdf from miles brian cahill at researchgate in the paper cahill looks at three time periods and figures real gdp trend growth estimates for each from 1949 to 1972 4 09 growth from 1973 to 1996 3 01 growth from 1997 to 2004 3 40 growth i will figure growth from 2010 to the last data before the big jumps in unemployment and compare that to growth after the increase of ten million having gone unemployed i started by figuring the same time periods as cahill my results are close to his from 1949 to 1972 4 16 growth from 1973 to 1996 3 05 growth from 1997 to 2004 3 45 growth my results differ some from his there have been revisions to the data since cahill wrote his paper and i think this explains the differences my results are close enough to cahill s that i am satisfied i got the arithmetic right here are my three graphs graph 1 graph 2 graph 3 i kept the x and y axis limits the same on these graphs so that the window is always the same size what we see in that window changes from one graph to the next on the third graph the cluster is much smaller than on the others in part this is because there are only one third as many dots on graph 3 in part the reduced variation is probably an effect of the great moderation in the trend line equation on each graph the number before the x is the okun s law parameter cahill says that number relates unemployment to gdp growth and we can use it to estimate how bad our social distancing recession might be if the number is close to 2 it means that when the unemployment rate rises by one percentage point gdp falls about two percentage points so far all these parameter values are close to 2 cahill s values are 2 2 1 83 and 1 95 mine are 2 15 1 83 and 1 99 remember though that all these values are for the year 2004 or before i m checking my work before we compare the 2010 2019 economy to the covid 19 economy something i didn t know according to cahill the number after the sign in the trend line equation gives the trend growth rate of gdp that surprised me but here again the results i got are a good match to cahill s because these and the parameter values all turned out close to cahill s i figure i got the math right another explanation of okun s law this from investopedia okun s law states that when unemployment falls by 1 gnp rises by 3 when unemployment falls a certain amount gdp rises a certain amount that s cut and dry they say 3 not 2 i ll get to that in a moment investopedia continues however the law only holds true for the u s economy and only applies when the unemployment rate is between 3 and 7 5 that s an interesting constraint we re looking at the us economy and our unemployment rate has been between 3 and 7 5 since mid 2013 so i ll say the constraint is not a problem on the 2 versus 3 difference in the impact on gdp investopedia says in the united states the okun coefficient estimates that when unemployment falls by 1 gnp will rise by 3 and gdp will rise by 2 when unemployment rises by 1 then gnp is expected to fall by 3 and gdp is expected to fall by 2 the 3 number applies to gnp gross national product economists talked gnp back in the 1960s when okun came up with his law today economists talk gdp gross domestic product the change occurred in the 1990s cahill uses gdp in his paper i m using gdp in this post the 2 number applies so we have an answer already the unemployment rate in february was 3 5 in march it went to 4 4 the difference is almost one percent call it a 1 rise in unemployment so we can expect gdp to fall by 2 that s based on cahill s parameter value of 2 which i duplicated and which investopedia confirms let me put the 2 decline in context graph 4 real gdp growth and the hp trend since 2002 the red line shows a smoothed trend of the growth rates shown in blue the trend line starts in 2002 just a little above the 2 0 level it gradually falls closer to 2 0 by mid graph it reaches 2 006 in 2011 2012 and it increases ever so slightly but visibly in 2018 and 2019 call it a trend growth rate of 2 if we have a rise in unemployment of 1 from february to march and if the parameter value 2 is accurate we can expect the gdp growth rate to fall by two percentage points if we have an rgdp trend growth rate of 2 as graph 4 shows and the growth rate slows by 2 we end up with a growth rate of zero by the way this is the effect of only one month s change in unemployment if unemployment continues to fall we can expect rgdp growth to go below zero how long might it last not long i think as i said the other day this recession is not the result of something wrong with the economy it is the result of our response to the pandemic a necessary response i think but when the pandemic eases and our response can relent employment will rise again probably rapidly and gdp growth will rise also but i don t want to make guesses about what will happen with the unemployment rate i want to look at the numbers we have on the unemployment rate and see if i can estimate the effect of those numbers on economic growth but first i want to check that last graph this next graph shows the same rgdp growth data as on 4 but this time to figure the trend i only look at the years since 2010 the trend line here shows more increase than we saw on graph 4 graph 5 real gdp growth and the hp trend since 2010 one of the funky things about the hodrick prescott hp calculation is that adding a new value to the end of the series can cause the trend to change as much as 10 or 15 years back i didn t change or add anything in the rgdp growth numbers shown by the blue line the blue line is exactly the same on graph 5 as it is on 4 but when i figured the red line on 5 i omitted the blue values from before 2010 and the red line changed as a result the start and end values for the hp line on graph 5 are 2 04 for 2010 q1 and 2 51 for 2019 q4 say 2 0 and 2 5 the trend shows a gradual increase in the rgdp growth rate so we should figure a trend rate of 2 5 for the early months of 2020 when our response to the pandemic started pushing the unemployment rate up and pulling economic growth down we had a 1 rise in unemployment between february and march of this year if the okun s law parameter is close to 2 then that one month s change in unemployment is enough that we can expect real gdp growth to fall by two percentage points if recent trend growth is 2 5 as on graph 5 and the growth rate falls by two percentage points we can expect economic growth to slow to around 0 5 as a result of march unemployment or i should say it this way we can expect economic growth to vary around the 0 5 level rather than around the 2 5 level as a result of the march unemployment but that is only true if the okun s law parameter still has a value close to 2 i don t think it does i think the parameter value is much lower now over the past several years unemployment fell several percentage points but sluggish gdp growth suggests that the parameter value is low i ll be following up in a day or so with an estimate of what the parameter value may now be and how it may impact economic growth links excel file for graphs 1 2 3 excel file for graphs 4 5 note these files contain vba macros at april 06 2020 2 comments email this blogthis share to x share to facebook share to pinterest sunday april 5 2020 the accounting view of money money as equity for an accounting view of money by biagio bossone and massimo costa at economonitor feb 12 2018 strikes me as a significant statement in fact even though the law says that money is debt a correct application of the general principles of accounting does raise deep doubts about such a conception of ...
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