Thanks, Stirling. Too bad the Bushies didn’t take note when the payroll decline started in December 2007. I don’t think we can expect it to get much better for awhile with things like Citigroup laying off 75,000. Horrors !

So we are in a recession. Surprise.

Thanks for this Stirling, much appreciated.

This is important in that it sides with the most pessimistic reading of the data, and it more or less comes out and says that the previous attempt to deal with the down turn made matters worse.

Stirling,
Did you listen to Bernanke’s speech? He didn’t mention regulation, deregulation, liquity trap once. Very telling absences.
http://www.federalreserve.gov/.....80110a.htm

Hang on to yer butts, it’s going to get worse .
The commercial real estate bubble is bursting now too.

the previous attempt to deal with the down turn made matters worse.

The Bush Effect.

The Bushies did not notice until thir personal fortunes were affected.
Then, boy did they notice:
We need 700 billion, stat!

RE:
“Their changing of the rules for the previous cycle has caused a quiet revolt among economists, who went back to citing the traditional rule of thumb that a recession is two consecutive quarters of negative GDP growth.”

The NBER’s criteria were never based solely on GDP growth, but was a mix of GDP (or GNP, previously), indices of industrial production, financial market indicators, prices, and labor market indicators.

So any economists ‘in revolt’ over tweaking of their criteria that departs from what was merely a crude rule of thumb, need to make their case on the merits. It is not a case of the NBER suddenly departing from some established rule.

One would expect NBER’s criteria to change over the almost 80 years they have been trying to date business cycles since the structure of the economy has changed, and data available has changed. And if it is to remain faithful to the methods of its founders, John Commons and Wesley Mitchell, it would avoid unsupported and rigid adherence to theoretical relationships to guide business cycle dating.

Finally, the NBER is a private, though very influential, research group with no official standing that I know of. They do not publish official governemnt statistics like the Census, Bureau of Labor Statistics, or Bureau of Economic Analysis.

So, if any economists do not like how NBER is dating business cycles, they are free to form their own cycle dating method, publish it, and see who believes them.

Technical note. The 1980 dip was Carter’s not Reagan’s, and occurred (on top of weakening fundamentals) when Carter asked people to put away their credit cards. Following which was one of the steepest quarterly drops in real consumer spending and real GDP in the post-WWII period. In a panic Carter said, no, no, no, I didn’t mean it at all, please go spend. So consumers did, economy briefly recovered & went back into recession under Reagan as a consequence of Volcker’s sky high interest rates.

I have often thought that the Carter boner with credit cards is why W told everyone to go shopping after 9/11.

I am not an economist, but I predict that mortgage defaults in formerly two income households will be a major factor in the coming months.

I agree with you. But don’t consider carping as legitimate criticism.

Also NBER procedure is by necessity backward looking, data dependent and economic data are revised a lot. The biggest blow to NBER credibility would be a major reversal: calling a recession & later having to say, oops we didn’t really mean it, or likewise with a recovery. (Type I error.) That means their announcements will lag even more. They will also be late on announcing an upturn.

There are some things that don’t require formal economics expertise to foresee. *g*

Thanks for that interesting tidbit.

Thanks for agreement, though did you mean I was carping or these economists were carping?

I will assume the latter, in which case, my concern is that post hoc carping, and fantasy league economic history games, seem to be having an outsized influence in the public media discussion, when done by ultra free market fanatic economists wandering among the devastated ruins of their theoretical framework.

iirc nber said we were in a recession early last spring. so is this just a change of the start date or something else?

Speaking of No Shit Sherlocks;

Bernanke Warns That Economy Will Remain Weak

Dang it ,here’s the link.

http://www.nytimes.com/2008/12.....=1&hp

Meant the other economists were carping. Glad you gave me the benefit of the doubt & will watch my antecedents more carefully. *g*

How long did it take you to compose your second paragraph? I couldn’t write that kind of prose if I were chained to my computer for a week. Well done.

Must have been some other pundit. I remember a couple of months ago on a thread arguing about why NBER hadn’t gone on record yet.

And on top of that, who cares? The dating and classifying of business cycles goes back to the 1920s and 1930s, when Wesley Mitchell set the enterprise up to empirically study business fluctuations. The idea was that if you captured enough of the critters, you might be able to generalize from the catch. Koopmans called him out on it in an essay on Facts without Theory, in which he argued that without a theory, mere massing of fact is unlikely to get you very far. We may differ on that point, but the fact remains that the exercise in dating the business cycle has little practical application. It’s basically a score card, and like any other game, there are those who will try to work the refs.

The Commerce Department and Labor Department have a huge statistical operation that grinds out data at short, medium and long intervals. These are the data that matter for policy.

I frankly don’t see the point of the NBER’s rating scheme. I never have.

Did you see my 4? That was the most significant part of the speech to me. When talking about why the fed had taken extraordinary measures to underpin nondepository institutions, he said that there was no mechanism like FDIC for depository institutions. But now they had TARP and everything is copacetic. No mention that FDIC came with all sorts of regulation & oversight. Nope. All is fixed now. Nothing to see. Move along.

If Bernanke had mentioned a liquidity trap, he would have been admitting why the trillions he and Paulson have been throwing at the meltdown have had so little effect. As for regulation, again he and Paulson seem committed to propping up the current financial house of cards no matter what, not changing it.

The Bushies noticed all right. Way back in December 2007. They just chose to keep the lid on the truth about the numbers until after the election.

Beg to differ. Having a standard to use in studying business cycles was invaluable for me in trying to analyse & predict turning points in the economy.

I am not a sports fan, but I believe the stats help fans understand the game better and help the coaches & the players improve. Or is that not the case?

does anyone know how nber is funded? grants?

my bad, it wasn’t nber - it was martin feldstein (former president of nber). from march 14:

The United States has entered a recession that could be “substantially more severe” than recent ones, former National Bureau of Economic Research President Martin Feldstein said Friday.

“The situation is very bad, the situation is getting worse, and the risks are that it could get very bad,” Feldstein said in a speech at the Futures Industry Association meeting in Boca Raton, Florida.

NBER is a private sector group that is considered the arbiter of U.S. business cycles.

Saying that Bush’s recession will join the longest recessions of the post war era makes him very proud. He beat Daddy again. Mission Accomplished.

I am an official member of the economics profession, therefore must choose my words very carefully lest I be cast into the outer darkness of skeptics, so have long practice at it.

BTW, I think the NBER has always included leading indicators as criteria, in order to correct for the lag time problem. They don’t want to be ridiculously late, while keeping their Type I errors safe. I will check on history of their dating methods when I have time. So there is precedent for their reliance on the earliest peak indicator for this one.

I really don’t see that they are doing much different from the past. NBER has always avoided theory driven methods, and they have always tweaked the definitions. It is true that the indicators coincided wtih changepoints in GDP in initial post WWII recessions, but times change.

actually, i would prefer to have some other entity to form an opinion. just my preference not to put all my eggs in this gov’ts basket, if you know what i mean.

And I wonder how hard Bernanke will fight against financial regulation after 1/20. That is if there’s any fight to be had.

Well if it helps any the unofficial fdl brain trust was saying we were either in or heading into a recession in the fall of last year. *g*

Oh I bet they’re holding some doozies back until inaguration.

would be great to see you check back in from time to time on this issue, sir.

Good point. But most economists believe NBER dates coincides with some underlying fundamental economic reality, so NBER dates for cycles are those I see most used in business cycle research, by far.

that has been their mo so far. we, the people, simply can’t be trusted with the truth, ya know.

Of the 16 peaks & troughs designated by NBER between 1948 and 1982, real GDP coincided 9 times and differed by a quarter or two in the other 7 cases. So the rule of thumb was good only half the time. I remember NBER always took a lot of things into consideration besides the standard stats. There are a lot of similarities among business cycles, but also each one had its differences, so no reason to be mechanistic.

Are you an academic? I had more freedom on Wall St. to speak ill of my colleagues/competitors, and rarely hesitated to do so when the situation called for it.

We can’t be trusted not to storm the Bastille when we learn the truth.

Now there you go again, being negative. *g*

Dow down 520 . . .

As a non economist, I’m hoping that is because the amount and method of the stimulus was ineffective, rather than that Keynes offers no effective method of combating the nose dive.

damn those DFH… just don’t understand that being right before the Very Serious People is just not civil. *g*

Lisa Derrick across the hall at the Silo on World AIDS day.

every time paulson opens his mouth the market tanks. this time 150 points so far.

Wasn’t gonna take that one up. But imagine what the economy would have looked like without the tax rebates. Some complain that they were used to pay off debts instead of spent, but that behavior was independent of the tax rebates. They would have used (shrinking) income to do that if there weren’t tax rebates.

Did Paulson speak too, or are you referring to the Bernanke speech?

thanks for the link. i missed bernanke’s speech and am taking a look at the prepared remarks now. i’m finding it a little difficult though, as i have to translate his “let’s put everyone to sleep” way of describing things into hair-on-fire speak.

Keynes method takes a long time but provides long term strength and stability. infrastructure here we come. bridges, roads, health care, etc.

he just got done.

paulson, that is.

Thanks, that was my crossed-finger understanding of Paul Krugman and others.

Bernanke does that on purpose. Maybe this will help: it’s basically a litany of what the economy did, what the financial institutions did, what the fed did. There’s no overall model or context, just a recitation of events.

That’s why I thought that what was omitted was the story.

Missed it. Drat. What did he say?

q: where was bernanke’s speach broadcast? don’t see it on cspan..

The problem with the spring response was that it was too small, too late, targeted in a way that did not generate follow on economic activity, and worked against monetary policy.

cnbc carried it live. Wasn’t on any of the cspans. It was before the Austin Chamber of Commerce.

In the Q&A he was asked to compare current with Great Depression. A: Not at all alike, no, no, no, because back then they blew policy response and today we’re doing it right. My characterization only a slight exaggeration of what he actually said.

Thanks for the explanation. How did it work against monetary policy?

sorry, only listen to him now with 10% of my consciousness. cnbc, i run it all day to watch the massacre. short paulson — we are on top of it. looking at ways to reform rating agencys, etc. at a national level, etc.

Shorter Bernanke:

Don’t stop me now, I’ve got the economy in a gopher groove.

Thanks. Switched back to cnbc so will get some instant analysis.

As a non economist, I’m hoping that is because the amount and method of the stimulus was ineffective, rather than that Keynes offers no effective method of combating the nose dive.

$160 billion in the context was actually fairly small potatoes. That it was a one time thing and how it was directed also made it less effective than it might have been. But eCahn is right, things would have been worse without it.

bernanke:

The changes to the discount window were designed to assure banks of the availability of a backstop source of liquidity. Although banks borrowed only moderate amounts at the discount window, they substantially increased the amount of collateral they placed with Reserve Banks. This and other factors suggest that these changes to the discount window facility, together with the statements and actions of the FOMC, had some positive influence on market conditions.

this is the kind of thing that drives me batty. i don’t understand how the fact that bank are placing more $ with the reserve banks (aren’t they now offering interest or something?) suggests a positive influence on market conditions.

Looks like Dow will lose 600 plus today.

thanks. will look for an audio file…

Monetary policy was for a stronger dollar to blunt resource inflation driven by oil prices. The stimulus check design put a small amount of money in people’s hands, which they promptly spent on things that helped drive up oil prices. The stronger dollar helped tank overseas economies, thus depressing US manufacturing, and accelerated the housing downturn, which in turn destabilized the banking sector. The size of the stimulus and it’s delivery did little or nothing to pick up slack manufacturing capacity.

The most effective Keynesian stimulus is designed to get people to spend on things that are in over-supply.

Basically, get people to go out and buy things that the economy can make more of easily.

OT
Jeb Bush not waiting for 2012. Starting up a shadow govt right now. (So much for that one prez at a time thingy.)
http://thinkprogress.org/2008/12/01/jeb-on-gop/

we have to have massive investment in the infrastructure. you know, the one that the thugs have starved from the beginning of time in their search for fiscal responsibility.

Shorter Bernanke:

The operation is a success despite the fact the patient is dying.

Or to be more specific, despite the fact that real FF/Libor spreads remain high, and banks aren’t lending using our special facilities, Captain Carnage argues that since they are shoving more money into the Fed’s mattress, that at least means they have some money.

Thanks.

Infrastructure spending is a good idea, but it is not going to be the thing that cures the economy. Instead, what is important is to create a policy regime which tells people what to invest in going forward, confident that there will be demand stretching years out into the future.

It is a great time to be doing all those things that we’ve been putting off, but people aren’t hiding in their homes for fear of hitting a pot hole.

eCAHN, left a note for you near end of this morning’s post re: NBER

The fed has been lowering interest rates since mid-07.
http://www.newyorkfed.org/mark.....drate.html

keynes.

I looked, but couldn’t find it. Could you post the link here?

Yes, however, starting this spring the Fed and Treasury began a concerted program of shifting both Treasury and Fed policy to lower the velocity of M3 and thus produce a dollar drought and a stronger dollar. This policy shift dates from March of this year. Essentially Bernanke did not want a contraction of M1 going into a downturn, because that would have been bad, but thought that by restricting broader money supply that it would be possible to ease inflationary pressures.

He was, in fact correct. The stronger dollar did, in fact, blunt global oil demand and reduce the price of oil. However, as noted, the only problem is that the resulting dollar drought set off a chain reaction in the financial system, which was dramatically accelerated by the failure of Lehman Brothers.

As for “things would have been worse without the stimulus bill” - possibly, but in all likelihood most of the bang came not from the tax prebates, but from the more prosaic expansions of counter-cyclical programs.

What Bernanke is actually admitting here is that banks are dumping more of their crap assets with the Fed. This was why Paulson backed away from using the TARP to buy them up. The Fed was offering them a better deal and largely took over the TARP’s function so Paulson made up other ways to spend the TARP money.

Dow down 670.

Sounds excessively clever to me, with all kinds of possibilities of unintended outcomes. Imagine that!

i’m sure they knew what bad news we would have today. so fed and treas tried to blunt the force. did it work?

for years real wages

Yes

http://firedoglake.com/2008/12/01/obama’s-big-cabinet-rollout-clinton-holder-gates-napolitano/#comment-1744505

Dow down 670.

That’s OK. Last week the media were saying that the choice of Geithner caused a surge in the market because Wall Street liked him. This was mostly whistling by the graveyard but hey at least it wasn’t negative!

Jokes on cnbc that the only thing missing from today’s market debacle was W making a speech on the economy.

did it work?

Obviously a rheorical question, but we are talking about the Bush admin, so of course it didn’t work!

buck up buddy. things will get better. i think we have a leader now. well, maybe.

I saw only 3 comments by you in that thread & I read them at the time.

For future reference, if you click on the comment number & copy & past the url, it takes you directly to that comment.

i swear everything they touch turns to shit. am i allowed to say that?

NBER CEO & Krugman upcoming guests on CNBC.

My # 72:

In response to eCAHNomics @ 69 (show text)
Thank you eCHAN for taking the time to illuminate, my comment was out of order, a lame try at humor, should have known better. This is just one example where the education of the public is a failure, people should know how their government works, thanks again for the information

Thanks. I read that at the time. Sorry I didn’t respond to it. Your comment wasn’t at all out of order, as many think about NBER the same way. One of the things I appreciate about the interaction here is the ability to benefit from others who have more expertise than I do.

NBER prez explaining business cycle dating problems on cnbc. Doing a good job.

But he does have the biggest ears I’ve seen in a long time. Waiting for him to flap them & fly off when the interview is over.

ya know, big ears/feet mean big…

I thought the correlation was with big hands because …

Thanks for info on GDP and NBER dating. It more or less jibes with my recollection. I depend enough on academic employment to fear punishment of signs of serious deviationism.

could be. haven’t heard that wrinkle. :)

Thank you, I learned something new today, I did not recognize the acronym from economic readings and did not appreciate the importance. It was EPU’d when I submitted and you were gone from the thread. Off to read now - The Wealth of Nations (re-read first half). All the best…..

That comes from a report I did at the end of 1990. Subsequent revisions could have changed it a bit. I was out on my ear (lost an internal political battle) when at the peak of the dot com bubble so I didn’t have the opportunity to update it with the 2000-2001 recession.

What is academically “in” in your environment these days?

“A policy can’t be any smarter than the people who have to run it.”

Krugman’s up on cnbc.

It’s called the Sidam touch.

Krugman’s talking gloom & doom. But no one is mentioning that without sustained growth in real wages (which has not occurred since the 1960s) there is no visible means of support for the economy. Even a gigantic infrastructure spending bill will be “temporary” if it doesn’t lead to generalized better employment and wage growth.

One thing that adds credibility to NBER dating is that the dating committee has long represented a broad cross section of economic thought. So, it represents a consensus view from conservative (but sane conservative) monetarism, rational expectations, to liberal Keynesian viewpoints. I noticed a list of current committee members at the bottom of the NBER announcement, and it includes pretty much all credible viewpoints.

Also, I think Stirling Newbery has about the only comprehensive and coherent story tying recent events together. I hope he posts some references, or can provide some graphs and data, soon.

One thing about Bernanke is that his reputation is based on his theory that credit crunches are main cause of financial panics and slide into severe recession, and that these produce liquidity constraints. Easing the liquidity constraints will solve the credit crunch. So, he is obsessed with seeing the business cycle from this viewpoint. Bernanke’s reputation gets a big A+ on the first part. On the second part, he does not get a big A, or B, or probably not even a C.

Monetary policy during most of Bush years has partly been driven by desperate improvisation because Bush fiscl policy has been insane. So monetary policy has had to do its normal job and make up for mess caused by bad fiscal policy.

Bernanke is better than Greenspan, but I think he has some serious theoretical blind spots, and has had disadvantage of working in framework of Bush/Paulson policies. I was shocked when Greenspan testified he was shocked that corporate management/ownership structure could cause incentive problems.

missed him. what he say? we screwed?

Who could have anticipated …

Julia a couple of flights upstairs on outsourcing at the NY Times.

I agree. I think the theories of Great Depression as caused by structural income and wealth distribution problems need a second look. They have been out of favor in macroeconomics for quite awhile. Current conservatie and a and center (Summers) to center-left macroeconomics (eg, DeLong) is built on panglossian microeconomics, which also should get another look after this episode.

& wesgpc
See my 101.

wesgpc, I agree that Bernanke is wedded to his credit crunch model.

I’m wedded to the model that economic growth starts with consumers and all the rest follows. (When I worked on an econometric model with hundreds of equations, they got solved iteratively, starting with the consumer spending equations.) Credit crunches can influence that but income is even more important, and there is no policy now being suggested that addresses consumer incomes (especially wages) growth in any meaningful way. Policy makers are still trying to cut “labor” costs, forgetting that workers are also customers.

For some Americans, the recession started at least 2 years ago.

One reason why today’s NBER report is interesting is that they sided with that interpretation of the data.

It’s not income distribution I’m talking about per se, though if real wages of (”real”) workers were rising it would have income distribution implications. I’m just talking about arithmetic: if real consumers’ incomes aren’t rising, they don’t have money to spend. For the aggregate economy, the day of reckoning was put off for a long time because of rising employment, and then the ability to use one’s house as an ATM. But both of those have run their courses so we’re back to the basic basics.

Manufacturing has been in recession since late 2005, and the housing market since mid 2005.

Righto. I didn’t mention it but was heartened by it. I have felt like a lone voice crying in the wilderness for quite awhile. I’ll keep crying. Seems like a few notables might listen.

The lack of increase in real incomes will only be solved by increasing investment supply. For the last 30 years or so it has been assumed that increasing investment demand would solve this, and all other problems. This theory, “has the misfortune of having been tested.”

The lack of increases in real income has been something that economists on the left have been harping on for some time. How to do this, however, is something that has eluded policy makers.

Yep. I can’t tell you how many people I talked to online a couple years ago that had lost their jobs and were filing bankruptcy. The last 8 years hasn’t been a good ride for a lot of people, but ‘luckily’, George Bush had the right people under him to issue reports that everything was fine and hunky dory!

Are you referring to the alleged link between investment and labor productivity? If so, I think the standard reasoning is backward. Labor productivity stems from the substitution of capital for labor, so the benefits accrue to the owerners of capital, i.e. corporate profits, which is what we’ve observed.

Real wages rise only when labor is in such short supply that companies are forced to bid workers away from each other. That seems to take an unemployment rate around or below 4%. That explains the 1960s and the brief episode or rising real wages in the 1990s.

In the 1960s, labor was expensive owing to rising real wages, while capital was cheap (low interest rates, low inflation in capital goods prices). So companies substituted cheap capital for expensive labor. But the causality was exactly opposite to the conventional wisdom.

In the 1990s, labor was expensive owing to rising costs of medical benefits. Capital was cheap. So labor productivity rose, but it did not benefit workers. Wages rose only when unemployment got quite low.

If my model that only really scarce labor causes rises in real wages is accurate, it is a close to intractable problem to address with policy.

The only thing I can think to do is things that may help little in the short run, but change the power division between corps (that have it all) and labor that has next to nothing. That means becoming friendlier toward unions, working on “living wage” legislation. And of course, a single-payer national medical plan would take that element out of the direct supression of wages. But there’s no magic bullet.

This is one reason why I’m watching the auto industry issue so closely. I’m not a big fan of the companies or of the UAW, but I think it’s being used as an excuse to cut union power even more. That is digging the whole deeper.

The lack of increases in real income has been something that economists on the left have been harping on for some time. How to do this, however, is something that has eluded policy makers.

It hasn’t eluded them. They did it on purpose. Growth in wages has been portrayed for years as inherently inflationary whereas growth in capital gains has not. This tracked with the shift from a work based to investment base economy. The government has for years funneled money into the investment side even when the result was a succession of paper bubbles at the same time they have viewed wage growth as a sign of a sick economy.

Well put. It policy makers know how to suppress real wage growth, then they obviously know how to make it grow.

The problem with this theory is that it ignores a combination of tax and monetary policy. Remember NAIRU? Monetary policy was used to make sure that wages didn’t rise, every time they did, the Fed strangled them.

That doesn’t follow.

As for NBER, they miscalled the Bush recession, which is why a lot of folks don’t trust them much.

That’s exactly what I’m talking about, but Hugh said it better in 118. Suppressing wage growth, whether it was NAIRU, or anti-union or whatever other dastardly trick they used, was POLICY. And if it worked in the intended direction in suppressing real wage growth then it might work in the opposite direction in increasing it. But it will never happen as long as real wage growth is considered identical to inflation.

gotcha. although i don’t see how that suggests a positive influence on market conditions. unless propping up the house of cards is the goal. oh, wait….

A lot depends on what you count as inflation. Since asset bubbles weren’t counted as inflation they were used as ways of providing very inefficient stimulus to the economy and making various folks rich at the same time. It’s also because asset bubbles tend to sidestep the oil bottleneck.

trade policy too.

Policies that, at the same time suppress wage growth and foster profit growth, always result in asset bubbles. There’s nowhere else for the excessively easy monetary policy to go since the stimulus is not oriented enough toward workers to get real growth strong enough to ignite widespread inflation in goods and services. (There are structural inflation issues in medical, higher ed, and legal, but those should be addressed by industry policies not macro policies.)

Good addition.

Yes. “It’s not a bug, it’s a feature”.

It’s the flip side of why I constantly say that the wage stagnation of the past 30 years was deliberate.

The old economy has bottlenecks to expanding production and wages, the only way out of this trap is to widen the playing field, as it were, and dramatically expand the range of goods and services which people can buy and produce. Only then can you get the virtuous circle of greater capital specialization producing greater labor specialization, which leads to higher productivity and returns for both.

A simple example is a computer. The more skilled a computer user is, the more return from the capital there is, and in turn, the more the workers will be compensated, because they cannot as easily be replaced.