In today’s NY Times, Peter Eavis writes about the message in “soaring bond prices”:
…a huge bond market with a strong track record for predicting economic problems is flashing a warning sign right now. … The prices of Treasury bonds are rallying fiercely.
Today we are fortunate to have a guest contribution written by Joshua Aizenman, Dockson Chair in Economics and International Relations. This post is based on a presentation at the Society for the Study of Emerging Markets Panel session, AEA meetings, Boston, January 3, 2015.
Some people have fixated upon the near doubling of the minimum wage after WW II (one person misidentifies the date as 1948, but it’s actually 1950) as a cause of disemployment in certain groups. This may have happened; however, the increase in the minimum wage from $0.40 to $0.75 was not associated with a decrease in general employment, nor of youth unemployment.
Reader Patrick R. Sullivan keeps on talking about the post-World War II boom, and telling people to watch The Best Years of Our Lives (A fine movie, by the way). I think I know why he thinks times were great for all, if your history comes from Hollywood. Rick Stryker chimes in with the statement: “If you talk to people who were around right after WWII, as I have, you’ll find that they agree with Patrick R. Sullivan that the latter part of the 1940s was a boom.”
For a last bit of “Year in Review”, yet more “Facts are Stupid Things”. Patrick R. Sullivan asserts that the economy boomed once the government reduced its spending in the wake of World War II. I am going to take a “boom” as a rapid increase in economic activity. Here is a time series depiction of real GDP’s evolution, using the Valerie Ramey (UCSD) series from her 2011 QJE paper (ungated working paper version here).
To heck with facts… and the scientific method.
Reader Steven Kopits writes “potential GDP model is also a binding constraint model”, so GDP “…is subject to some sort of natural speed limit which cannot be exceeded”. This assertion is so amazingly absolutist in nature, and represents such a misunderstanding of how macroeconomists typically think of potential, that I am moved to observe that if this were so, output would never exceed potential GDP in our frameworks. Now, let’s consider the relevant depiction implied by the CBO estimates (using a production function approach [1]).
A year ago, Jeff Frieden and I forecast (along with others) in Politico Magazine a boom in output. In light of today’s third release for 2014Q3 real GDP, clocking in at 5% SAAR [1], it’s reasonable to ask, are we there yet?