Two days back I showed you a striking similarity between Nonfinancial debt and GDP, a similarity going back three decades before 1980:
 |
| Graph #1 |
The similarity is somewhat less striking at the extremities when we compare Total debt and GDP for the same period:
 |
| Graph #2 |
Note that we are now comparing to 150% of GDP, not 135%.
You might want to say the two lines are still similar. But they are less similar. Now the blue line (debt) starts lower and ends higher than the red (GDP) line. Debt is growing faster. GDP is not keeping up.
Subtle? Sure. A subtle premonition of what was to come:
 |
| Graph #3 |
You might want to say there was no big difference between the lines until our economic policies changed in the 1980s. Well, okay. But I would remind you that those policies changed because there were problems already in the 1970s.
And I would point out that though the policies changed, there was no shift in the fundamental assumption that underlies policy: the assumption that we need credit for growth -- and more credit for more growth.
The only change in policy, really, was that we strengthened the urge to use credit. Since 1980, you don't have to zoom in, to see it.
8 comments:
But I would remind you that those policies changed because there were problems already in the 1970s.
I don't think that is completely accurate. There was high and growing inflation, until Volker snuffed it out. And there was a particularly nasty recession in 1974. But, by 1980, that was not really prominent in anyone's awareness.
I'll say the policies changed because a group who had always favored that policy set came into power. We went from Friedman saying, "We're all Keynesians," to Reagan saying, "Government is the problem."
WE went from an era when governemnt sought to solve social problems and do what was (in some sense) right for the country to an era when governance took a back seat to ideology and domestic problems were ignored.
Nixon gave us the EPA. Reagan gave us supply side economics - which everyone involved in knew to be a sham, right from the get-go.
It was never designed to solve economic problems. it was a ruse to favor the wealthy elite.
JzB
Wikipedia, United States presidential election, 1980:
Through the 1970s, the United States underwent a wrenching period of low economic growth, high inflation and interest rates, and intermittent energy crises. Added to this was a sense of malaise...
No doubt politics was involved too, Jazz; it was a Presidential election.
"I'll say the policies changed because a group who had always favored that policy set came into power."
No matter their motives, no matter their allegiances, no matter their beliefs, they "came into power" because the economy did not satisfy voters. What was it Reagan said? Are you better off than you were four years ago?
"Only by reducing the growth of government," said Ronald Reagan, "can we increase the growth of the economy."
But there should be no question today that Reaganomics did not work.
"We went from an era when government sought to solve social problems and do what was (in some sense) right for the country to an era when governance took a back seat to ideology and domestic problems were ignored."
So, we tried a different approach. And now we know that it didn't work.
"It was never designed to solve economic problems. it was a ruse to favor the wealthy elite."
Now you are inventing motives for other people.
You have to be careful with Wikipedia.
The idea that the 70's were a time of low economic growth is absolute bull shit.
GDP
Real GDP
Real GDP/Cap. Only slightly less than under Regan, and far better than any other Rethug pres, post WWII. And Reagan only looks as good as he does because the recovery post '82 was so strong - mainly due to his deficit spending. His second term was nothing special, and the buzzards came home to roost on Poppy Bush.
People actually were better off under Carter than under Nixon. But it wasn't by a lot, and they typically had no way to measure it. The 70's were slow by comparison to the 60's - but that is comparing the ordinary to the extraordinary.
Further, there were many distractions - like the Iran hostage situation. Then, there was the recession in 1980, which doomed Carter. If Volker had waited until after the election to raise interest rates, it might have been a different outcome.
Remember Reagan was terribly unpopular for a couple of years - nobody was better off then. Then Volker eased interest rates, St. Ronnie's fiscal profligacy boosted the economy, and people really thought the sun had risen.
Carter also talked a dour game, while Reagan spoke of morning in America. All bull shit, but the shyster knows how to sell his line of snake oil.
I am absolutely not inventing motives for other people. Karl Rove, Cheney, Rumsfeld - this whole cast of characters goes back through Reagan to Nixon and Lee Atwater, the southern strategy, and 2 santas thory.
Supply side had clear goals and it achieved them - a total capture of every increment of growth and productivity by those who already had the most.
Don't get lulled into thinking that any of this was either an accident or well-intentioned policy. They set out to undo the New Deal, and have largely succeded.
JzB
JzB: The idea that the 70's were a time of low economic growth is absolute bull shit.
Jazz, your graph of Real GDP shows a 13-year moving average with a major drop beginning around 1980 or 1981.
But you have plotted the average value at the last year of the 13-year period. Your method postpones the major drop to the last possible moment.
As you will remember, we have gone over this before. In my view you should treat an average like an average. You should plot the average value in the center of the 13-year period. Not at the end of the period.
Doing so would move the major drop to the left by seven years -- from 1980 or '81 to 1973 or '74. It would put your major drop right where it belongs: with the 1974 recession.
I don't expect to convince you my way is better. But look at the big huge red-blue bump on your graph from 1961 to 1972. After that the red-blue line falls, and the yellow 13-year average sails by, overhead, for like 10 years. But nothing justifies the high level of that line, nothing except the red-blue hump that ended way back in 1972.
I cannot accept your claim that "The idea that the 70's were a time of low economic growth is absolute bull shit." I think your graph is wrong.
Jazz, I am reading the FinEff PDF that Nonny linked --
http://pages.stern.nyu.edu/~tphilipp/papers/FinEff.pdf
On page 10, under "Total Factor Productivity", on line 4 of that part, Thomas Philippon writes: The trends are 10-year centered moving averages.
Centered.
Here is average growth in real GDP by presidential administration - in a post that you inspired, BTW. Using a bar chart this way is conceptually pretty similar to centering the average over the period. I carelessly omitted using the word "real" in my text, but tracing back to the source, it is real (inflaion adjusted) GDP.
It tells exactly the same story I was promoting originally.
The variability was awful - and largely due to oil shocks, but the average growth - under both Nixon and Carter - was not bad. Carter was only incrementally below Reagan. And since then, only Clinton has done better.
So, I repeat: The idea that the 70's were a time of low economic growth is absolute bull shit.
Cheers!
JzB
Ol' dog.
Arf!
Post a Comment