Karl Smith points out an important truth: All that matters is unemployment.
“The 1970s were definitely an era of stagflation and remembering that can help us see through a lot of the bad analysis we have today.
Scott is correct that we remember the 70s as an era of slow growth but indeed GDP growth was rapid. We remember the 70s as having a poor labor market, but as you can see the employment population ratio rose strongly during the 1970s. As much as during the boom era 1960s.
As the Carter administration was coming to a close the employment population ratio was at an all time high.
Not only did unemployment reach a post-war high during the 1970s but even during the best part of the 1970s it failed to fall below 6%, a value that had been near only associated with recessions in years past.
This is part of why I keep harping on unemployment, unemployment, unemployment.”
The charts and the rest make this a must read.
Inflation is very low right now, but nobody cares. People think this is a terrible economy because unemployment is so high.
Smith says unemployment never fell below 6% in the 70s, but his graph shows it falling below 6% on 2 occasions, and in below 5% in the early 70s. That doesn’t affect his point, however.
Also, Smith doesn’t seem to have a link to the post by Sumner that he is disagreeing with. (There is a link in the quoted Sumner post to an older Sumner post.)
The US essentially had balanced trade (between 0 and 1% surplus) in the 1970s, in more recent decades, not so much.
http://1.bp.blogspot.com/-l9v77iEqSEE/Tm2Aywxh5FI/AAAAAAAAANw/QfXFViLwLqU/s1600/TradeDeficitGDP.jpg
I came across an interesting statistic the other day, from January 1992 (the last time trade was balanced) to January 2012, the US averaged $315B a year trade deficits. As you can see from the chart, that is weighed towards more recent years (it was $600 billion last year) but $315B x 20 years is $6.3 trillion in trade deficits. Remember what Wynn Godley said…
“The budget balance is equal to the difference between the government’s receipts and outlays, but it is also equal, by definition, to the sum of private net saving (personal and corporate combined) plus the balance of payments deficit.
If the private sector decides to save more, the government has no choice but to allow its budget deficit to rise unless it is prepared to sacrifice full employment; the same thing applies if uncorrected trends in foreign trade cause the balance of payments deficit to increase.”
Geez we have a hell of an uncorrected trend going on. Clearly both our public debt and our unemployment rate are much higher than they’d have otherwise been if we had kept the 70s level balance of trade ((the cost of lower debt would be have higher unemployment and vice versa), I hate to say this, but its abundantly clear that Donald Trump is the voice of reason on this issue.
“But what about our exploding budget deficits? Surely, those do need to be dealt with, and dealt with fast. The Obama administration’s level of government spending is bankrupting the country.
Trump’s response? To shake down countries that have been freeloading off of America for years, or as he put it, “having countries that are ripping us off contribute hundreds of billions of dollars back into this economy and you wouldn’t have to worry too much about cutting the budget.”
http://www.humanevents.com/2011/03/14/trump-unplugged/
Well, if countries promulgate free markets, free trade and capital flow as international policy, they should not be surprised if it ends up working against them Difficult to run the policy that the US is pushing so hard and then whine about being “taken advantage of” by the policy.
It all seems to be in line with current rules, and the basic rule of capitalism is that there are winners and losers, and that cooperation and coordination are for sissies who can’t compete.
The casino economy is doing just fine with big deficits (trade and budget), hgh unemployment and low inflation…. the real economy, not so much.
Can anyone explain the root of Sumner’s obsession with any and all forms of GDP to the point where he ignores other very important economic indicators?