"The underlying reality of low growth", Neil Irwin says, "will haunt whoever wins the White House in November". I don't think so. I expect vigor, no matter who wins the White House in November.
I think it would be pretty ironic if Hillary Clinton gets elected. Because what I'm looking at amounts to vigor starting about a year into the first term of the next U.S. President. If Hillary is elected, we will be hearing stories that it takes a Clinton to create economic vigor. But Bill Clinton had no more to do with the good economy of the 1990s than Hillary does with the good economy of 2018-2024.
It would be more accurate to say that the changes which created the good years of the latter 1990s happened mostly during the Reagan and H.W. Bush years; and that the changes which will create the good years to come happened mostly during the Obama years.
For the record, the vigor of the 1990s was made possible by a big drop in debt growth (1985-1991) combined with a big increase in spending money (1990-1994). The debt-per-dollar ratio shows this as a decline (1990-1994). That decline was followed by unusually rapid increase (1995-2000). This increase was the source of the funds that made vigorous growth possible in the latter 1990s.
The changes are indicated in red on the graphs below:
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| Graph #1: The Growth of Total Debt |
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| Graph #2: The Growth of Spending Money |
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| Graph #3: The Debt-per-Dollar Ratio |
You can see the same effects in the graph of household debt service.
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| Graph #4: Household Debt Service |
The stage has already been set for the vigor that will be attributed to our next President.
7 comments:
"If Hillary is elected, we will be hearing stories that it takes a Clinton to create economic vigor."
And I heard something like that from President Obama, stumping for Hillary, on the news tonight.
Hi Art,
If Trump gets elected there will be the same stories...
Probably, we will be better off if Hillary get the undeserved credit
BLS:
"Productivity and Costs, Third Quarter 2016, Revised
Transmission of material in this release is embargoed until 8:30 a.m. (EST) Tuesday, December 6, 2016
...
PRODUCTIVITY AND COSTS
Third Quarter 2016, Revised
Nonfarm business sector labor productivity increased at a 3.1-percent annual
rate during the third quarter of 2016, the U.S. Bureau of Labor Statistics
reported today..."
It's going up.
dw.com: Robust economy likely to nudge US Fed to hike rates
"Positive economic conditions, marked by falling unemployment and accelerating inflation, have increased the odds of the US Federal Reserve raising its benchmark interest rates at its ongoing policy meeting."
It's going up.
Edward Harrison, The failure of the Trump presidency, 23 August 2017:
"The economy grew 2.6% last quarter. And the Atlanta Fed’s GDPNow tracker is at 3.8% for this quarter."
It's going up.
"Since the summer of 2016, the global economy has been in a period of moderate expansion, with the growth rate accelerating gradually." -- Nouriel Roubini, 13 September 2017
Following an EconBrowser post of 20 September 2017, Steven Kopits comments:
Depressions show markedly different economic and social dynamics than ordinary recessions... One has to speculate as to what could cause such a prolonged malaise. Gavin Davies takes a crack at the issue:
“The graphs above show a simple version of the Taylor Rule, comparing the appropriate rate (red line) with the actual policy rate set by the central banks (black line). The graphs contain a simple but clear message: because of the constraint imposed by the zero lower bound, policy [rates] were much higher than the appropriate rate for the ECB from 2009-16, and for the Federal Reserve from 2009-14. Now, the rise in the appropriate rates has taken policy into slightly expansionary territory in both the ECB and the Fed, despite the rate rises introduced in the US.”
This interpretation suggests that real interests were too high in the aftermath of the Great Recession, and therefore investment, and perhaps productivity growth, were too low. With Taylor Rule interest rates now above target, the economy may begin to operate well again, with productivity growth rebounding and GDP growing nearer (or above) its historical range...
We know from the Great Depression (for which I have not seen Taylor Rule analysis) that the US struggled through the 1930s, but doubled its GDP from 1941 to 1947, and did not fall back materially with the end of WWII (although there was a stiff post-war recession). We are now at a similar turning point, which would seem to either end in war or in a burst of renewed growth.
An excellent analysis, and a solid prediction of vigor. But if vigor depends on interest rates, then interest rates depend on other things (and not only on the Fed. Jim is right: the Fed rate follows the market rate).
Vigor depends on the growth of credit use ... which adds to accumulated debt ... and high levels of accumulated debt undermine vigor. The interest rate is one of the things that gets pushed around by credit use.
Keep an eye on interest rates and you'll be 18 months behind me with your prediction of vigor.
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