Marcus responds

Marcus Nunes of Historinhas, who does awesome graphs, took the time to reply to my Having it both ways. He made such a nice presentation that it seemed a waste to keep it hidden away in my email. So with Marcus's permission, I'm posting his response below. Even though he tells me that I "got it all wrong!"

I've numbered his graphs (because it helps me think) and deleted his opening greeting. Everything else is unedited and strictly his.

Give me a few days to get my thoughts together for a reply.

Here's Marcus:

Art

Basically, you make the mistake you accused me of making: “chopping”. You “eyeballed-in a trend line” from data covering 1975-1979 and said “Marcus assures us that we´re looking at is not an employment gap but the very beginning of a long boom”. In the process you “solved my problem” (I´m worried about nothing)!

Your Total Non Farm chart with trend is misleading! The chart below shows the level and trend of employment (NFP) from 1955 (that´s the usual start date to ‘take out’ post Great Depression+WWII and Korea War ‘adjustment).

Graph #1

The next chart shows the labor force participation rate both total and women´s participation rate.

Graph #2

Note the impact of the ‘feminist movement’ of the 1960s and 1970s in increasing the LFPR of women (men´s LFPR declines throughout). It peaks in the late 1990´s and overall LFPR falls pulled down by the’ secular’ decline in men´s LFPR. The more recent drop is mostly attributable (I think) to the “Great Recession”.

I still believe it´s true that “Ed Lambert graduated at the ‘right’ time, just as the Volcker adjustment took effect, ‘eradicating’ inflation from the system and stabilizing the economy, paving the way to the Great Moderation.

The next chart depicts RGDP and trend from 1955 onwards. Do you note the “Great Recession” (“Lesser Depression”)?

Graph #3

In growth rate form:

Graph #4

In what ‘world’ do you prefer to live: In “boom-bust” or in “great moderation”? (Remember the mean growth in both periods is the same).

The next chart shows Nominal GDP growth:

Graph #5

A rising growth trend (“Great Inflation”) is indicative of a non-stationary series (means and variances are not ‘identified’). Note that during the “Great Moderation” NGDP growth becomes stationary (the mean growth is 5.5%). Note how ‘off the charts’ was the fall in nominal spending!

The following chart shows the level of NGDP and its trend from 1987 onwards (the period of the “Great Moderation”). This cannot be done for the previous period because the data are not stationary.

Graph #6

Since in my post I showed only a portion of the period (from 2004) you thought I had only done the trend calculation from that point on! So you thought you were ‘replicating’ the exercise when you chose the 1975-79 period to establish the employment ‘trend’ in your chart.

Again, you got it all wrong!