The Council of Economic Advistors via Whitehouse.gov responds to criticism of their "rosy" projections in the Administration's budget for economic growth:
But, a key fact is that recessions are followed by rebounds. Indeed, if periods of lower-than-normal growth were not followed by periods of higher-than-normal growth, the unemployment rate would never return to normal.
Another key fact is that deeper recessions are typically followed by more rapid growth. Table 2 shows the peak-to-trough decline in real GDP in each of the last 10 recessions, along with the average growth rate (at annual rates) in the 8 quarters following each recession.
Interesting, but...
- This is like saying "if you survive cancer, you will live a great life"
- How many of these recessions involve systemic financial meltdowns... none you say?
- After a recession, the economy is smaller... so OF COURSE the economy will bounce back and appear to grow at a higher rate as it trends back to norm (i.e. if the economy goes down 50%, then rallies 100% it is only back to where it started... extreme, but you get the point)
I'm assuming there's no +8qtrs for the recession ended in 7/80 because it was only 4 quarters until the next recession. Correct?You are correct: BEA
"How many of these recessions involve systemic financial meltdowns... none you say?"
ReplyDeleteI love that.
You should do a rebuttal graph with the Great Depression, Japan's Lost Decade, Weimar Germany, and the Soviet Collapse as a comparator.
Great post. I'm assuming there's no +8qtrs for the recession ended in 7/80 because it was only 4 quarters until the next recession. Correct?
ReplyDeleteAJK- nice catch... here's the data
ReplyDeletehttp://bea.gov/national/nipaweb/TableView.asp?SelectedTable=3&ViewSeries=NO&Java=no&Request3Place=N&3Place=N&FromView=YES&Freq=Qtr&FirstYear=1979&LastYear=1981&3Place=N&Update=Update&JavaBox=no#Mid
A better pre-/post- GDP decline comparison would be how long it took to reach the previous GDP level in real terms (i.e.--we're back where we started).
ReplyDeleteOf course, growth will always be quicker from a lower base, but it takes considerably more growth to make the difference in value. (EG--If the economy has declined by 10%; it will take 11% growth to break even.)