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mbed but the old existing debt did not grow with inflation your mortgage payment was the same month after month and year after year meanwhile your paycheck increased along with prices because of the inflation each year s inflating prices helped to enlarge the new increases of consumer debt but each year s inflating paychecks made existing consumer debt smaller in context it is the rapid inflationary increase in the context data the gdp data that distorts the picture of debt growth during the great inflation despite the large increases to consumer debt through the 1970s the increases to paychecks and incomes and gdp made consumer debt growth look like it slowed significantly consumer debt growth slowed almost not at all during the great inflation if you strip away the effects of inflation consumer debt in context relative to the size of the economy shows a strong up trend comparable to graph 1 above graph 4 consumer debt in context like graph 2 blue and consumer debt in context with inflation stripped away red okay there is a bit of a slowdown in debt growth during the great inflation but only a bit and really not like it looks on the second graph it is not a slowdown that merits exclusion from surge status we had rapid debt growth camouflaged by inflation it s obvious i think posted by the arthurian at 4 00 am 3 comments friday december 20 2013 oh daniel at crooked timber daniel says there is a lot of rewriting of the recent past in the secular stagnation view of why we re in the mess we re in basically the thesis is that since about the mid 1990s it has been the case that it has only been possible to achieve anything like full employment in america during periods when the private sector has been chronically over consuming and increasing its debt levels daniel doesn t buy it they got a structural increase in personal sector debt because they wanted one and set policy in order to create one there s no good calling it a bubble or a puzzle now that the shit s hit the fan amen brother i liked the article i don t like that the thesis only goes back to the mid 1990s but that s not daniel s version of course daniel takes us back to when china starts to industrialise and nafta is passed i don t know about china but nafta came into force in 1994 according to wikipedia so mid 1990s daniel does refer to the entire period in question as the greenspan years which gets us back to 1987 nothing before that that i noticed for more or less the entire period in question call them the greenspan years the growth of consumer spending financed by increased consumer debt was the main instrument of policy sure in comments robert waldmann replies a wish is not a plan greenspan clinton and bush might have wished for consumers to borrow and spend but they had no way of forcing people to okay but policy doesn t force people to do things policy induces people to do things and anyway consumer debt was increasing anyway see how the dramatic increase begins right there in the mid 1990s no no i mean right there in 1987 no no debt was going up from the start to be clear i do like daniel s summary of events since the late 1980s those were all contributing factors surely and i very much like where he s coming from in describing the growth in debt as if it was a purely exogenous phenomenon due to nothing other than animal spirits and irrationality there s a really dangerous kind of mistake being made it was policy absolutely it was policy either we encouraged debt or we failed to discourage it or both actually both but here s the thing daniel you don t go back to the time when a problem became obvious and point to that time and say there s the problem things don t happen instantly in the economy things develop the debt that became a problem in 2008 was already a problem for people in the 1990s the debt that was a problem in the 1990s was already creating problems in the 1970s and the debt that was a problem in the 1970s was already a developing problem in the 1950s it s obvious just look at that up trend on the graph posted by the arthurian at 4 00 am 11 comments thursday december 19 2013 a disputed statement is a weak link in a chain of argument at the economist r a quotes from an earlier column another theory holds that high savings reflect a cramping of consumption due to rising inequality of incomes the share of income earned by the top 1 began climbing in the early 1980s and now stands close to the record set in 1928 rich households save more than poorer ones a paper published this year by barry cynamon of the st louis fed and steven fazzari of washington university in st louis estimates that prolific saving by the top 5 has been suppressing demand since the mid 1980s that squeeze was mostly offset by increased borrowing by the bottom 95 they find america and britain unlike germany and japan saw rapid growth in private debt in the 2000s the assertion that rich households save more than poorer ones is something that makes perfect sense to me but apparently is unsupported by evidence of course cynamon and fazzari disagree like krugman i d like to agree unlike most everybody with a stick in this fire i don t know enough about it to contradict anybody for the sake of this post however let s suppose krugman is wrong cynamon and fazzari are right so here s where we stand p rolific saving by the top 5 has been suppressing demand since the mid 1980s that squeeze was mostly offset by increased borrowing by the bottom 95 as evidenced by the rapid growth in private debt in the 2000s let s consider these two groups the 5 and the 95 let s presume income inequality was stable from world war two until 1980 for simplicity assume that the income of the 95 was just equal to the income of the 5 before 1980 each group received half of gdp after 1980 let s suppose income shifts by 1 of gdp each year the income of the 95 falls by 1 of gdp and that of the 5 rises by a like amount sounds like an economic model to me after 25 years of 1 transfers from the 95 to the 5 half of the 95 s annual income has shifted allegiance but i still don t like the disputed line rich households save more than poorer ones disputed lines don t make strong arguments in a post i didn t recommend larry summers put the five versus ninety five thing in terms i like much better when he referred to high spending debtors and low spending creditors in such terms one need not quibble over evidence posted by the arthurian at 4 00 am 3 comments wednesday december 18 2013 secular stagnation strikes again on 12 december 2012 i showed this graph stages of the slowdown in real growth on 15 december 2013 larry summers wrote why stagnation might prove to be the new normal you can see the new normal in my graph twice not a recommendation to read the linked post posted by the arthurian at 4 00 am 0 comments tuesday december 17 2013 worst case unemployment and the output gap part six in a series that starts here a while back i looked at the myth of jobless recoveries okun s law and hodrick prescott calculations the hodrick prescott calc can be used to smooth out a data series like gdp or the unemployment rate it smooths out the ups and downs of the business cycle so you can see the underlying trend okun s law says there is a consistent relation between unemployment and output it says when output drops one percent below trend unemployment rises half a point above trend when output rises one percent above trend unemployment falls half a point below these trends that are part of the okun s law calculation you can use the hodrick prescott calculation to get them now here is what i did a while back in a follow up post after first vehemently denying that such calculations are reasonable i took the unemployment numbers from fred and figured the hp trend for unemployment then i set the original unemployment numbers aside i took the real gdp numbers from fred and figured the hp trend for real gdp then i subtracted the trend from the original numbers this gave me a measure of how far real gdp was off its trend then i took those off trend numbers and divided them in half in half because okun s law says what happens to unemployment is half as big as what happens to output so i just scaled the off trend output values down to fit the unemployment rate then i took those scaled down output values and added them to the underlying trend for unemployment the hodrick prescott trend subtracted maybe i forget then i took these unemployment trend plus off trend output numbers and put them on a graph along with the original unemployment numbers the idea which i got from the myth of jobless recoveries post was that if the two lines turned out similar it was evidence that there is a strong reliable relation between unemployment and real gdp the two lines turned out similar despite my initial objections i was forced to admit the arithmetic was good and i learned of the strong reliable relation between unemployment and real gdp here s what i m thinking if there is a strong reliable relation between unemployment and real gdp then we should be able to compare gaps we should be able to look at the gap between official unemployment and worst case unemployment and look at the gap between real and potential gdp and maybe see something interesting in the two gaps i m thinking we can use the output gap and the unemployment gap to establish whether those calculations are valid at the start i was thinking i could use those gaps to establish that at least one of the data series is not valid maybe to show that the revised down version of potential gdp is wrong that would be interesting but i m no longer sure i could pull that from the numbers i need some time with this i want to set this topic aside for a while and come back to it later i ve been sitting down to write the next posts in series but end up writing other things it s just not there yet meanwhile if anyone else is looking into this do let me know posted by the arthurian at 4 00 am 0 comments monday december 16 2013 figuring worst case unemployment part five in a series that starts here graph 1 actual and hypothetical unemployment source erceg and levin via john taylor by worst case unemployment i don t mean the worst that one can possibly imagine i mean the worst we can reasonably expect based on estimates and projections made by bls and other agencies engaged in that sort of thing anyway my intent here is not to tell another discouraging story my intent is to look at one of the discouraging stories that s out there so as to better understand it so as to get a feel for the validity of that story or the lack of validity to duplicate the worst case unemployment graph i need to rework the labor force participation rate rather than letting it fall rapidly as it has i want it to fall slowly as the november 2007 bls projection anticipated i m trying to mimic the negligible decline of unemployment shown in the red line on graph 1 here and i think the bls number will help me get there a plan finally came together in my head an overview of what i want to do first use the labor force participation rate and the 2007 bls projection to come up with numbers showing how big the labor force was expected to be before things fell apart call it the hypothetical labor force participation rate second work backwards from there to get numbers for the hypothetical labor force third subtract the number of employed people from the hypothetical labor force to get the hypothetical number of unemployed persons use this number to determine the hypothetical unemployment rate that s the plan step one i went back to fred for quarterly data on the three series used to generate the graph for friday s post civilian labor force clf16ov civilian noninstitutional population cnp16ov civilian labor force participation rate civpart and uploaded the file to google drive the november 2007 bls projection which we looked at yesterday predicted an annual growth rate of 0 1 percent for the 2006 2016 period a very slight decline i figured a quarterly growth rate that would give an annual rate of 0 1 percent then i took the first quarter 2006 value and starting from there applied my quarterly growth rate to generate the numbers checking my work bls projected a participation rate number of 65 5 for 2016 i got 65 43 for first quarter 2016 65 38 for fourth quarter so i tweaked my quarterly growth rate to get the same 65 5 number that bls got i m calling this number the hypothetical labor force participation rate check my work step two to figure the labor force participation rate lfpr you take the civilian labor force clf as a percent of the civilian noninstitutional population cnp you can rearrange that formula to see clf in terms of population and participation rate now i just use the hypothetical labor force participation rate in place of the official version the hypothetical is a significantly higher number so it produces a significantly higher civilian labor force i am calling this number the hypothetical civilian labor force check my work step three okay now i need some more data i need the number of people employed so i can calculate the hypothetical number of unemployed persons then using that number and the hypothetical labor force i can figure the hypothetical unemployment rate and i will need the official unemployment rate for comparison to the hypothetical number these are numbers we looked at on saturday i went back to fred for the relevant numbers quarterlies and put em in a new spreadsheet along with my step two results the number of people in the labor force less the number working is the number of people out of work or in this case the hypothetical labor force less the number employed equals the number of hypothetical unemployed and then the number of hypothetical unemployed as a percent of the hypothetical labor force equals the hypothetical unemployment rate graph 2 check my work i think i duplicated their graph posted by the arthurian at 4 00 am 0 comments sunday december 15 2013 preparing to figure worst case unemployment part four in a series that starts here on thursday i took a first look at worst case unemployment what the unemployment rate would be if everyone who was expected to stay in the labor force actually stayed in the labor force and if people who were expected to enter it entered it when people who are looking for work give up when they stop looking they are no longer in the labor force so the labor force gets smaller then the number in the labor force who are not working becomes a smaller percentage of the total labor force so the unemployment number goes down the unemployment number goes down not because there are more jobs but because there are fewer people trying to get a job this is what john taylor and others have been pointing out taylor showed a graph comparing the official unemployment number and what unemployment would be if everyone who was in the labor force stayed in the labor force well i too...
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