Since Richard Posner has decided to exhibit his math skills again, I thought it useful to work through some math to see how one can obtain back-of-the-envelope estimates for the stimulus package. I’ll use Mr. Posner’s numbers to illustrate.
Author Archives: Menzie Chinn
Monthly GDP Estimates: Stabilization and Upswing…for Now
Here are the latest reads on monthly GDP:
Honesty, Dishonesty and Competence: Comments on Posner’s Critique
Richard Posner has a critique of public intellectuals who work in the public sphere (with special reference to Christina Romer), either in government service, or in journalistic fora. Mark Thoma and Brad Delong have already made clear the (many) points at which Mr. Posner has gone astray. Parenthetically, I’ll add that I wonder about the analytical abilities of anybody who lumps Philip Glass (!) and Elliott Carter together into the highbrow music category (see page 18 in his tome Public Intellectuals: A Study of Decline (1991)). More substantively, I have a few of additional observations, some of which are amplifications of Brad Delong’s points.
A Utilization-adjusted Measure of Productivity: Implications for the Output Gap
John Fernald and Kyle Matoba of the San Francisco Fed have just released a utilization adjusted total factor productivity series (data here). The importance of this development is clearly laid out by the authors:
This Economic Letter looks at potential output from the perspective of growth accounting, which assesses some of the key supply-side factors determining sustainable, noninflationary potential output. Perhaps most importantly, we find that the underlying pace of efficiency improvements — “technological progress,” broadly construed– has remained strong during the recession. This strength offers a reason for cautious optimism about potential output and the long-term health of the American economy. More immediately, stronger potential relative to the same observed output implies substantial slack in the economy.
Leading Indicators: Key Economies and the BRICs
A month ago, I examined the information content of the OECD’s Composite Leading Indicators. The August release (for June data) is out. There’s substantial variation in the implied outlook across economies.
GDP, Potential, and Debt Forecasts — and Implied Multipliers
GDP Forecasts
The WSJ August survey indicates a resumption of growth in Q3. What was perhaps a bit surprising was the bump up in the Q3 q/q SAAR growth from about 1 percent to 2.4 percent. The out-quarters were little changed. These forecasts imply the following trajectory for GDP.
The Paranoic Impulse in Current Discourse
Or, “return of the black helicopters”
Plenty of examples of hyperbole in current policy discussions, but here I want to return [0] to the specific topic of whether several key data series examined by economic analysts can be trusted, or whether in fact they are deliberately manipulated by government bureaucrats. Case in point is Econbrowser reader DickF‘s comments:
The government thinks it can run the economy on data that is years old and inaccurate at best. Also any time numbers are manipulated by government there is a political element involved. The whole reason the numbers are manipulated is to the will be “more normal” but who decides what is normal? In the government political bureaucrats who know their jobs depend on pleasing the politically connected. This is just another reason why centrally planned economies always fail. The hubris in government economic circles is enormous.
…
I am not saying that the agencies are manipulating data to make “each respective Administration look good.” Sometimes they manipulate date to make an Administration look worse than it actually is. It depends on their political inclination.
Exchange Rates: New Papers
During the summer, I had the good fortune to attend two excellent conferences focused on new findings in exchange rate economics (yes, not all economic research is focused on the financial crisis and recession). The first was a Bank of Canada-European Central Bank conference Exchange rates: The global perspective, and the second was the NBER International Finance and Macroeconomics Summer Institute session “Exchange Rates and Relative Prices”.
Employment, Hours, and Estimated Output
Some observations on the employment situation and other economic indicators: (1) Not only is nonfarm payroll employment slowing its rate of descent, so is private employment; (2) but perhaps more dramatically the decline of aggregate hours halted last month; (3) the rate of decrease has diminished even faster for civilian employment measured by the household survey, and indeed; (4) the household (research) series adjusted to conform to the payroll series is now improving; and (5) a first “estimate” of July GDP supports the case for stabilization of output.
China’s Impact on the Global Economy: A Symposium
As attested to by the large amount of coverage of the recent US-China Strategic and Economic Dialog [0] [1], [2], [3], [4],[5] China looms large in any discussion of the world economy. One of the most important contributors to the informed discussion on this subject was Brad Setser, at the Council on Foreign Affairs and before that at RGE Monitor. Unfortunately, Dr. Setser will be leaving the blogosphere, so his insights will be missed (although fortunately for us, he’ll be adding his input at the NEC, where we all wish him well).
So now, there’ll be even a greater need for reasoned analysis. One addition to the discussion is a Symposium on China’s impact on the global economy just published in Pacific Economic Review (August 2009). From my introductory chapter to the symposium:
Over the past decade, China’s presence in the global economy has grown
increasingly large. Along many dimensions, China is, rightly or wrongly,
perceived to have an enormous impact. In the trade arena, China is now widely
considered to be the world’s workshop, displacing some traditional exporters
of labour-intensive goods, even as its economy is ever more closely woven into
the fabric of the increasingly fragmented chain of production….