Wednesday, October 26, 2016

Taylor's Laundry

John B. Taylor:
Because the economy has grown from the start of this recovery at a pace no greater than the prerecession trend, it has left a vulnerable gap of unrealized potential that can and should be closed with faster economic growth. In several key ways the US economy resembles an economy at the bottom of a recession, ready for a restart, even though the unemployment rate has reached 5 percent.

The US economy resembles an economy at the bottom of a recession, Taylor says. Pretty much, yeah. I don't know if it's in my notes or on the blog ...

Here it is. I wrote:
Our last recession ended in mid-2009, according to NBER dates at FRED. Seven years ago. And I've read articles written by people apparently hungering for recession, suggesting that after seven years of growth we are already due for another recession.

[But] the claim that we've just finished up seven years of growth and now a recession is due, it seems to me that's the ridiculous claim. Growth was, what? Half what it should have been? So don't call it seven years. Call it three and a half.

John Taylor is calling it zero years. He's a little bolder than I am.

Note Taylor's phrase "even though the unemployment rate has reached 5 percent." He is pointing out the evidence people have for saying we're well along in the recovery. Taylor of course is saying we are really not well along in the recovery. (The title of his PDF is Can We Restart the Recovery All Over Again?.)

One could undermine the "5% unemployment" argument by pointing out the decline in the labor force participation rate, as Taylor does. Correcting for that decline would increase the labor force by five percent, he says. I'm thinking that would raise the unemployment number to 10%. That's no recovery.

I agree with Taylor's observation of our lack of recovery. But I don't agree with his prescription. My argument is always the same: The problem is excessive reliance on credit in the private sector. Taylor does not have that kind of focus. He is all wack-a-mole with tax reform, and regulatory reform, and entitlement reform, and monetary reform, and free trade agreements. Taylor doesn't have the cause of the problem. He has a laundry list.

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