The Way We Were:
"The Way We Were, and Should Be Again"
by Jude Wanniski
The Wall Street Journal, November 11, 1994
by Jude Wanniski
The Wall Street Journal, November 11, 1994
"Why do you think President Clinton isn't getting credit for the good economy?" a producer of CNBC's "Business Insiders" asked me as we prepared for the show.
I asked the young man how old he was, and when he replied "29," I told him bluntly that he was too young to know what a good economy looked like — that you have to have lived in the 1950s and 1960s to have experienced a good economy.
By a good economy I mean one that is not only expanding, but is also employing the nation's human and physical resources at a relatively high degree of efficiency. In my experience, in these terms the U.S. economy has been contracting since the late '60s, and is now nowhere near the levels reached earlier.
You have to have lived in the 1950s and 1960s to have experienced a good economy, Wanniski says. And In my experience, in these terms the U.S. economy has been contracting since the late '60s.
The good economy came to an end in the late 1960s, he says.
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Steve Keen on the level of private debt:
On current trends it will take till 2027 to bring the level back to that which applied in the early 1970s, when America had already exited what Minsky described as the "robust financial society" that underpinned the Golden Age that ended in 1966.
According to Minsky, Keen says, the Golden Age ended in 1966.
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Suppose we take FRED's numbers for Household Debt and for Disposable Personal Income, look at the growth rates of these two series, and subtract income growth from debt growth. Where the result is greater than zero, debt is growing faster than income. Where it is less than zero, income is growing faster than debt:
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| Graph #1: Household Debt Growth less Disposable Income Growth |
Probably not.
Look at the same two datasets another way. Consider household debt in billions, relative to disposable personal income in billions. Where the line is going up, debt is growing faster. Where the line is going down, income is growing faster:
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| Graph #2: Household Debt (in billions) relative to Disposable Income (in billions) |
You should be comfortable with the thought that both graphs show the same change in 1966: Debt growth was faster than income growth before 1966, and slower than income growth for some years after 1966.
But perhaps Graph #2 brings something to mind that Graph #1 didn't: inflation. It was just around 1966 that inflation started pushing prices and incomes significantly higher. Income went up, prices went up, and new borrowing to pay for new purchases on credit went up, but existing debt was unaffected.
Inflation drove income up, but it did not drive existing debt up. Income grew faster than debt as a result, and both graphs show it.
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Minsky pegs 1966 as the end of a golden age. Wanniski pegs the late 1960s.
How 'bout that.
3 comments:
It's rather ironic that Wanniski - a major architect of Supply side economics - says the golden age ended in 1966. His golden age ought to have been the 80's. But he's a crank, anyway, who believes Smoot-Hawley caused the great depression.
That is not a view this is given a lot of credence. I took a look at possible Smoot-Hawley effects back in '09.
That aside, I'm not sure what point you are trying to make. Per graph 1, the 1966 date seems a bit arbitrary, since the line oscillates around 0 for over three years. Then there's that big up-down move in the '70's, including another hover near zero for over two years.
As you know, I like to see what trend channels can tell us. FRED is not the greatest with that tool, but I threw some on your graph 1.
https://research.stlouisfed.org/fred2/graph/?g=21cY
The major turning point could be as late as 1981.
The message I get from Graph 2 is that the line stops its upward movement as early as Q4 '63, and then stays almost flat, with some wobble, into 1985. That's virtually no change over more than two decades. After that, the slope is generally less than it was in the 50's.
It's strange that the most dynamic period of graph 1 is the most placid period of graph 2.
Generally speaking, debt growing faster than income (graph 1) has correlated with a growing economy, while income growing faster than debt has been associated with recessions, most particularly the recent great recession and it's anemic, unevenly distributed recovery.
Cheers!
JzB
Hey Jazz
"That aside, I'm not sure what point you are trying to make."
Yeah, no strong point. I did like the coincidence that Wanniski and Minsky see the same end of the golden age. My first thought was that the graph added to that coincidence. But a second look at the graph (during the writing) eliminated that option. My "probably not" a coincidence should have become a "maybe not" but that's a change that didn't occur to me till hours after posting. I hate it when that happens :)
Still, it's never a loss to look at a graph or two. And it's more interesting with your trend channels. One might argue that a downtrending channel (income growing faster than debt) was generally good for the economy and an uptrending channel was generally not...
"The message I get from Graph 2 is that the line stops its upward movement as early as Q4 '63..."
Graph #2 shows upward movement until Graph #1 goes below zero in 1966, but certainly there is a slowing on #2 that corresponds to #1's approach to zero.
"Generally speaking, debt growing faster than income (graph 1) has correlated with a growing economy, while income growing faster than debt has been associated with recessions ..."
There's that, and also the level of debt (from graph #2) plays a role. I'm thinking about combining the two calculations into one.
This is all pretty interesting, so keep at it.
Cheers!
JzB
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