Tuesday, December 29, 2015

Race to the bottom?

    A few months ago, four economists writing in support of Jeb Bush's tax plan said we are experiencing "the weakest economic expansion since World War II."  I was going to do a post on that subject, but didn't get around to it.  I was reminded of the issue when Paul Krugman posted a figure showing better economic performance under Obama than under GW Bush.   If Obama is the worst, how could Bush have been even worse?

   The National Bureau of Economic Research provides dates of the beginning and end of recessions (an expansion is anything that's not a recession).  Those go back to the 1850s, but modern data on GDP go back only to 1947, so I looked at recessions and expansions since then.  The current expansion has indeed had the slowest average growth rate, breaking the record previously held by the 2002-7 expansion, which broke the record previously held by the 1991-2000 expansion.  You may notice a pattern here.  This is a scatterplot of average GDP growth in expansions since the late 1940s--the x axis is just a sequence number.

There's definitely a pattern there--the average growth keeps getting smaller.  Hopefully that won't go on forever.  The good news is that the average duration of expansions has tended to increase.  The latest one, which started in the third quarter of 2009, is already longer than average, and is still going on. Another way to make the same point is to say that recessions are becoming less frequent.

But maybe Obama should have done better, since  "recoveries tend to be stronger after deep recessions," according to the report I quoted above (p. 4).  Here is a scatterplot of average quarterly growth by average quarterly growth in the preceding recession.

There's no clear relationship--you could call it a positive relationship with one glaring exception (the 2001-7 expansion), but "stronger recovery after a deep recession" implies a negative relationship. You could also define depth of the recession and strength of the recovery by the total growth (average times number of quarters), but no relationship is visible that way either.

So under Obama, it's been slow expansion, but almost all expansion (everything except the first quarter or two); with GW Bush, it was slow expansion and quite a bit of time in recession.

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