Author Archives: Menzie Chinn

Point of Clarification: The Economic Report of the President, 2009

Misinformation in the talk-show world. From today’s Rush Limbaugh show (which is titled “A Teachable Moment on Tax Hikes”):

CALLER: Thank you for taking my call. I just wanted to point out something to you about your comments on taxing, and Obama’s own economic advisors agree with you, and it’s in a report that I found online. It’s the Economic Report of the President. It’s issued by the Council of Economic Advisors, which were appointed by Obama, and there’s an entire section in that report that says lowering tax rates stimulates economic growth.

RUSH: That was then. They have removed that from the website. What’s the woman’s name that wrote that? I’m having a mental block. Romer. Christina Romer. She wrote that. She put it on their website and once Obama won: Bam! It came off, and now in its place is: “Spending a dollar generates a dollar and a half.” It used to be, “Reducing taxes every dollar generates a dollar and a half,” or a half a dollar. They’ve totally reworked it. She’s been neutered, as it were.

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The Output Gap: Neoclassical Synthesis, New Classical and New Keynesian

It has been interesting to me how much excited commentary has been elicited by my posts on output gaps. [0],
[1], [2], [3] I had thought the subject fairly uncontroversial, especially my reliance upon the CBO measure, which is calculated in a conventional manner, and is an object well-understood in mainstream macroeconomics (take your pick — from Hall and Papell to Mankiw). However, it’s clear that there is no such agreement in the blogosphere (which can be taken as an indicator of how dispersed beliefs are in that world). In any case, the reaction tells me that one’s belief in what determines potential GDP defines in large part how one thinks about the workings of the economy, and so I thought it useful to discuss alternative measures coming out of current academic work.

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Industrial Production and Manufacturing Output, Compared

One can get an idea of how bad this recession is compared to previous ones at the St. Louis Fed’s Recession Watch. They haven’t They’ve now updated the pictures to account for today’s industrial production release (-1.8% vs. Bloomberg consensus -1.5%)., so I will convey the situation in two graphs. To sum up, industrial production is lower than at the corresponding point in any previous post-War recession. For manufacturing output, the same is true back to the 1973 recession (as far back as this series goes).

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The Current Downturn: Labor-leisure tradeoff or technological regress

Some views from an economist who is not “advancing the science”.

Reader Joseph commenting on the stimulus bills brings my attention the Cato ad, wherein several Nobel laureates write against a stimulus plan. Ed Prescott is the Nobel laureate who won for work on growth/macroeconomics, so attention must be paid! I looked a bit for his reasoning, and only found this quote from the East Valley Tribune:

“I don’t know why Obama said all economists agree on [the need for a stimulus bill],” Prescott said. “They don’t. If you go down to the third-tier schools, yes, but they’re not the people advancing the science.”

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