johnnymysto

Look at this picture. It is a monthly tracking of the Dow Jones, NASDAQ, and the S&P500 for the last four years.



See how things have been going UP since September of last year? Now, if we have a new president by next December, how many people think Bush will get credit for helping out the economy during his presidency? Yep - 3 people raised their hands. All kinds of commentators were so quick to slam Bush when he got in office and the economy went to crap. I doubt very seriously that they same people will give him credit for turning around the junk he had to work with. He started with the bursting of the Internet bubble, then got 9/11 on top of that. I think he's done a good job to get an upward swing so soon after all that junk. If we do have a new president in 2005, he'll be in great shape to take the economy even further because of Bush!

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Superbelt

This may seem a bit asshole-ish to say, but...
There is only so far our economy can tank before it just rebounds some on its own naturally. I think our economy is too strong, inherently, to fall into another depression. So a nominal rise is too be expected when the bar is cast so low.

And besides, this rise could just be the same thing as the hill that is Sept '01 - March '02. We need to wait a little while longer to see where this will trend.

Kadath

I agree, Johnny. The last president always gets blamed for problems and the new president always takes credit for anything good. Bush DID inherit a bad economy. When he stepped in, it was about at the zero mark on that chart, heading down. When he steps out, it'll meet my expectations if it's at the zero, heading up.

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gov135

A blind squirrel finds a nut every once in a while.

1. Bush's economic advisors have been come and gone. They can't get it right.
2. His economic impact as a president cannot be judged without looking at the debt he saddled our children with. The paying down of that massive debt will affect economis long after Bush is dead.
3. That's a pretty chart. Don't forget some of that "rebound" is due to the government taking on all that debt. The government is buying things at a record pace. This is nice for short-term charts, but again, the bill will come due.

The only way to develop an economy in the long term is to develop more middle-class type jobs. We've lost and continue to lose those. Just wait till the steel tariffs are taken away in the next few months.

onetime2

First off, the Dow, Nasdaq, and S&P 500 are not the economy. Second, a President has very little influence on the economy. Third, you are absolutely right that those who claim he is the reason the economy softened will not give him credit if it firms up.

And as far as the economy bottoming out or it being too strong to fall into another depression. Completely wrong. Fundamental economic truths have not been rewritten. There is no such thing as a "new" economy. If inflation spikes, housing prices slide, and/or the stock markets tumble you'll see consumers flinch and stop spending. If you think the economy growing by only 3% hurt wait till it slides into recession. It will happen eventually.

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Mojo_PeiPei

Wasn't our crash of the economy worse then the depression? The only reason things weren't as bad was because we had certain security measures put in place so the devastation wouldn't be as bad as the Great Depression.

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gov135

Depending on your measure of worse. Certainly the mass unemployment never occurred. But measures such as stock market depression and new housing construction were worse off. I think it's difficult to compare eras. For example - the stock market dip was numerically worse - but the market was so high in the late nineties that it's hardly a measure for comparison.

I'm not sure I know what you mean by "security measures." Surely, we understand alot more about brute economics now then we did then. We, for example, took drastic steps to control interest rates and inflation in the last few years. Also, being part of a global marketplace insulated us - there was still a demand for basic goods and services throughout the world market. If things like that are what you mean by "security measures," then yes, we were and are insulated from an effect as catastrophic as the great depression. The fact that we can't get hit as bad as the Great Depression doesn't mean we should tolerate any kind of unrest in our markets, however.

onetime2

Way off base here. We can be hit even harder than the Great Depression as there are infinitely more people involved in the stock market now than in the 20's. Through 401ks, pensions, and direct investing a large share of people's wealth is in the stock market. Big turmoil in the markets aren't as likely as the era of the Great Depression due to market rules that are in place now but there is no telling just how much of a drop in the market and/or for how long it would need to last before a panic starts or even before consumers stop spending as they feel they need to save more rather than spend.

As far as the economy doing worse than the time of the depression, absolutely not. What we've seen is a minor slowdown. A recession (two consecutive quarters where the GDP does not grow) would feel FAR worse than what we've experienced. Especially if it lasted longer than the two quarters.

Even during the Great Depression we were an international economy. The world economy has not mitigated our slowdown very much (if at all) since most countries are doing far worse than us economically. A few things have protected us from major economic turmoil. Low interest rates have allowed people to decrease their monthly costs (refinancings and lower credit card rates), productivity increases have allowed companies to earn profits without drastically raising prices (low inflation), and the greater participation in the stock market and higher home prices have given many consumers a feeling of wealth that they haven't had in the past. All this has equalled consistent consumer spending which has been driving our economy.

Astrocloud

(Strange, that even though that I started a thread with tons of links... a new thread was started on the same subject.)

Doesn't anyone read Brad DeLong's journal? He's Professor of Economics at Berkeley; the Undergrad Chair for their PEIS major; and damn good at explaining things.

First of all, there is always a risk of deflation. Like a lot of things... the risk goes up and down depending on the circumstance.


Here is an excellent article on deflation written last year. (Since that's what we're talking about -a deflationary recession).

http://www.j-bradford-delong.net/mov...es/000533.html

America's Date with Deflation?
Two years ago, at the peak of the late-1990s boom, the American economy was slightly overheated. As the unemployment rate fell to four percent and below, inflation began to creep upward, rising by between a quarter and half a percentage point each year. By late 2000 it was very clear that America's GDP was one to two percentage points above potential output--above that level at which aggregate demand balanced aggregate supply, at least in the sense that there was neither upward nor downward pressure on inflation.

Today things are very different. Today, in the summer of 2002, America's level of real GDP is running some two percentage points higher than it was in the summer of 2000. However, underneath is the extremely strong underlying productivity growth trend driven by the very real technological revolutions in data processing and data communications. These technological revolutions have boosted potential output by perhaps seven percent over the past two years. Thus today America's real GDP is not one to two percent above but three to four percent below potential output.

How do we know this? Simply look at the unemployment rate: today America is producing two percent more than it did two years ago, and is doing so with an unemployment rate not of four percent but of six percent. Moreover, the unemployment rate is more likely to rise than to fall in the next year and a half. The consensus forecast is that this year American economic growth will be positive, but will be significantly less than the rate of growth of potential output. Next year, in 2003, the consensus forecast is for American economic growth to be about 3.5% next year--equal to the rate of growth of potential output, but not enough to even begin to close the output gap.

With production substantially below potential output, there is downward pressure on American inflation. We have already seen American inflation drop nearly in half over the past two years. We do not expect this downward pressure to lessen for at least the next year and a half. If you do the math, you conclude that by the summer of 2004 the U.S. will have an inflation rate--at least as measured by the GDP deflator--that is less than zero. The U.S. will, if these forecasts come true, have joined Japan in deflation.

What does this mean? The first implication of deflation is that the central bank's ability to carry out a stimulative and expansionary monetary policy is greatly restricted. When inflation is four percent per year, the central bank can provide businesses with powerful incentives to take their spare cash and use it to build factories and buy equipment: if the central bank pushes short-term interest rates near zero, businesses are faced with the choice between investing in their business or watching the real value of their cash on hand shrink by four percent per year. When there is deflation, the central bank cannot make businesses such offers that they are unlikely to refuse: at a deflation rate of one percent per year, the real value of businesses' cash on hand grows by one percent per year even if the short-term nominal interest rate is as low as it can go.

The consensus forecast for the American economy over the next two years is not a pleasing one. Few (if any) believe that an unemployment rate of 6 percent is necessary to avoid upward pressure on inflation. Almost all are looking forward to a period with a substantial output gap: two years of sub-potential output with unemployment at its current level robs American households of some $800 billion in real production of goods and services.

More important, deflation--even slow deflation, but much more fast deflation--rapidly exposes weaknesses in businesses' and banks' capital structures. If there is the potential for a chain of bankruptcies that will disrupt the flow of funds through financial markets, cripple investment spending, and bring on a deep recession, deflation is the best way to turn that potential into an unpleasant reality.

Most important, however, is that two more years of downward pressure on the rate of inflation will rob the Federal Reserve--America's central bank--of its power to stimulate the economy. Today's GDP-deflator inflation rate is about one percent per year, meaning that today's federal funds rate target of 1.75 percent per year corresponds to a short-term real interest rate of 0.75 percent per year. If the U.S. price level in two years is not rising but falling at one percent per year, then it will be impossible for the Federal Reserve then to pursue a policy as stimulative as the Federal Reserve is pursuing now.

It is in this context that the Federal Reserve's failure to cut interest rates so far this spring and summer is very puzzling. If 1.75 percent was the appropriate interest rate last winter, when stock indices were 20 percent higher than they are today, it is hard to see how 1.75 percent can be the appropriate interest rate today. If 1.75 percent was the appropriate interest rate last winter, before the shock of revelations about corporate accounting began to drive a larger wedge of uncertain size between the terms on which the government can borrow and the terms on which private businesses can raise capital, than 1.75 percent is unlikely to be the appropriate interest rate today. And if the Federal Reserve wishes--as it surely does--to preserve its power to offset and neutralize any future contractionary shocks to the economy that may appear, then the current inflation rate is already dangerously low and already leaves it with remarkably little room for action.

Now none of this means that the American economy is about to run aground. But anyone who has ever sailed a sailboat knows that it is not enough to be far enough away from shore that there is still water under your keel. You have to be able to plot a course that will keep water under your keel. And you have to plot a course that will keep water under your keel even if Mother Nature decides not to cooperate: even if the wind shifts so that you can no longer hold your preferred course, or even if the wind freshens so that your boat is blown sideways more rapidly. The first rule of prudence--in sailboats and in monetary policy-setting committees--is to keep away from situations in which one or even two adverse shocks will cause severe difficulties.

Thus it is disturbing that the consensus forecast seems to paint a picture of the U.S. economy two years hence in which production remains substantially below potential output, and in which slight deflation has taken hold and robbed the Federal Reserve of its power to offset adverse shocks. The current course seems to carry the U.S. economy too close to a lee shore with a potentially freshening wind. It is a course that prudent sailors should not be happy to hold but should be scrambling to change.

JamesS

(1) The stock market is not always a good indicator of the overall health of the economy.

(2) It's not fair to saddle Bush with all of the blame for the economy of the past few years.

That being said, the objection many have to Bush's policy is the over-reliance on deficit spending to finance his foreign adventures, tax cuts, and the like. We could add trillions to an already monumental national debt before balance is restored, if current trends continue. And Bush, instead of recognizing this, plows ahead with his agenda.

And it's not just GOP friendly tax policy Bush is pimping. According to the Cato Institute (Libertarian think tank), Bush has been steadily raising discretionary non-defense spending at a rate many times that of the Clinton admin. (The study covered the first two and a half years, so don't start about congress muzzling Clinton).

On a related note, things like Bush's steel tarriff just piss me off - so nakedly political, and they end up doing more harm than good.

If Bush was serious about stimulating growth he would have targeted his tax cuts on the middle class (instead of focusing on capital gains and the like). Perhaps he could have implemented an (admittedly liberal) homeland security jobs program (a la improving the infrastructure of our borders and ports and the like).

I don't dispute that tax cuts for the upper class stimulate the economy, but the problem some don't realize is that those wealthy enough to benefit signifigantly from Bush's cuts would be much more likely to either (a) save the money instead of spending it or (b) invest the money in a foreign enterprise.

Even if we return to surplus, I still say it would irresponsible to massively cut taxes for anyone until we begin to make sizable strides in paying off our national debt (much of which is financed by foreign creditors such as communist China).

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Pacifier

hmm I found this recently:

http://www.markfiore.com/animation/econo.html

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