Russ Roberts

By historical standards, the current recovery from the recession that began in 2007 has been disappointing. This is part 3 of a three-part series with John Taylor of Stanford University’s Hoover Institution and Department of Economics.

Taylor puts the recovery in historical perspective and explores possible explanations for why the recovery has been so mediocre.

In Part 1 of this discussion of the recovery, Taylor quantified how unusual this recovery is by historical standards. In Part 2, Taylor looked at a number of standard explanations for the sluggish recovery.

Here in part 3, Taylor argues that the slow pace of the recovery is due to poor policy decisions made by the Bush and Obama administrations that have increased the amount of uncertainty facing investors, consumers, and employers. Examples include the rising debt forecast, the fiscal cliff, expiring tax provisions, and quantitative easing. Taylor argues that the uncertainty surrounding these policies in the future along with increased regulation have held back the recovery.

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Russ Roberts

By historical standards, the current recovery from the recession that began in 2007 has been disappointing. As John Taylor of Stanford University’s Hoover Institution and the Department of Economics argues in Part 1 of this discussion on the economy, GDP has not returned to trend, the percent of the population that is working is flat rather than rising, and growth rates are below their usual levels after such a deep slump.

In this episode, Taylor and Number’s Game host Russ Roberts discuss possible explanations for the sluggish recovery: the ongoing slump in construction employment, the effect of housing prices on saving and spending decisions by households, and this recovery’s having been preceded by a financial crisis. Taylor rejects these arguments, arguing instead that the sluggish recovery can be explained by poor economic policy decisions made by the Bush and the Obama administrations.

1) On the argument that there are structural problems in the labor market (0:25)
2) Comparisons to the 1981 recession (2:16)
3) Is this recession special because it followed a financial crisis? (2:46)
4) What can the Great Depression tell us? (3:55)
5) Why is the current recovery so mediocre? (5:32)

LINKS TO DATA & PAPERS REFERENCED -
Click to read more.

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Editor

The Numbers Game with Russ Roberts

According the National Bureau of Economic Research, the US economy recovered from the recession at the beginning of the summer of 2009. Yet the recovery has been disappointing when compared to other recoveries. In this episode of the Numbers Game, John Taylor of Stanford University talks with host Russ Roberts about the nature of the recovery. How does it compare historically to other recoveries? How can we measure the pace of the recovery? The conversation ends with a discussion of possible explanations for why the recovery has been disappointing.

 

LINKS TO DATA & PAPERS REFERENCED
2008-09 and 1981-1982 Recession & Recovery Charts:
Real GDP (GDPC1) downloaded from FRED 7/13/12, taken from BEA.gov - http://research.stlouisfed.org/fred2/series/GDPC1/
Potential GDP (GDPPOT) downloaded from FRED 7/13/12, taken from CBO.gov - http://research.stlouisfed.org/fred2/series/GDPPOT/

1907-08 and 1893-94 Recession & Recovery Charts:
GDP data from NBER, compiled by Nathan Balke and Robert Gordon with adjustments by John Taylor for comparability with earlier charts -http://www.nber.org/data/abc/ Potential GDP calculations by John Taylor using a Hodrick-Prescott trend.

The Plucking Model Working Paper:
The “Plucking Model” of Business Fluctuations Revisited by Milton Friedman Working Papers in Economics, E-88-48 — Hoover Institution, Stanford University
http://hoohila.stanford.edu/workingpapers/getWorkingPaper.php?filename=E-88-4…

Growth Rate of Real GDP Chart:
Growth Rate calculated from Real GDP (GDPC1) downloaded from FRED 7/13/12, taken from BEA.gov -http://research.stlouisfed.org/fred2/series/GDPC1/

Change in the Percentage of the Population that is Working Chart:
Employment-Population Ratio (EMRATIO) downloaded from FRED 7/13/12, taken from BLS.gov -http://research.stlouisfed.org/fred2/series/EMRATIO/

 

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Data Matters: The 1986 Tax Reforms

This week’s installment of Data Matters features data presented by Tammy Frisby, a research fellow at the Hoover Institution who also teaches in the political science department and public policy program at Stanford.

This week on Capitol Hill, there was renewed attention to the looming Taxmaggedon (or Taxmageddon; take your pick), which involves, among other pending tax code changes, the scheduled expiration of lower tax rates on income, dividends, and capital gains, and the end of the extended payroll tax holiday. There is now more public talk from senators and members of Congress about using the threat of Taxmaggedon in January 2013 to build a legislative coalition for a sweeping tax overhaul that would preempt the economic and political damage that Taxmaggedon would wreak.

For all the uncertainty about what will come of this talk, this is a safe bet: the next six-and-a-half months will be filled with comparisons to the last major tax code reforms in 1986.

Tammy Frisby has shared with us a pair of tables, which she used as a starting point for her own ongoing research on the politics of tax reform. These tables present the major changes made to the tax code with the 1986 tax reform law. The tables compare major provisions in the individual and corporate tax codes before the reforms and as passed in the 1986 law. The middle data two columns in each table show the proposed changes by two main administration plans (“Treasury I” and the plan out of the Reagan White House). Compare these plans to the final law to see where administration reformers hit political obstacles.

As we point out in the tables’ titles – the 1986 tax overhaul created a cleaner – but not a clean – tax code. Tax reformers in 2012 face prodigious challenges to reach even the success of the Reagan-era reforms, challenges that are no less daunting than Taxmaggedon.

Click on the images to enlarge.


Tammy Frisby is a regular contributor to Advancing a Free Society. You can read her analysis of policy making and elections here. She also provides analysis of the 2012 election in audio and video podcasts that are part of Hoover’s 2012 In Perspective series.

With Data Matters, we highlight data relevant to public policy that Hoover fellows are using in their research. We feature original data, data from another source that Hoover fellows are presenting in a new way, or data that fellows find helpful in shaping their own thinking. Visit the Data Matters archive here.

Sign up for the Advancing a Free Society RSS feed to follow our data stream.

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This week’s installment of Data Matters features data that shapes the thinking of Kori Schake, a research fellow at the Hoover Institution and Associate Professor of International Security Studies at the United States Military Academy at West Point.

Professor Schake points us to what she considers the best chart on worldwide defense spending, originally produced by the International Institute for Strategic Studies (IISS), the definitive collector of national data on defense capabilities.

The chart in the lower right of the image below shows the magnitude of 2011 U.S. defense spending compared to the rest of the world. The bubble chart running across the top of the image puts that spending in perspective as a proportion of GDP.

Click on the image below to enlarge.

The takeaway is that our economic strength affects our national security, because while the U.S. accounts for 46% of all defense spending in the world, we have, to date, been able to make that national security commitment by spending a relatively modest percentage of our GDP, both historically (4% is well below our post-World War II average) or relative to other powerful countries. (European countries being the exceptions because they’re free-riding off our NATO commitment.) Robust economic growth enables us to maintain a strong national defense while minimizing the trade-offs we must make with other important national priorities.

It merits mentioning that IISS data is based on what countries report, and the Chinese figures are generally believed to be double their reported amount.

Kori Schake is a regular contributor to Advancing a Free Society. You can read her analysis of national security issues and foreign affairs here, and subscribe to her RSS feed here.

With Data Matters, we highlight data relevant to public policy that Hoover fellows are using in their research. We feature original data, data from another source that Hoover fellows are presenting in a new way, or data that fellows find helpful in shaping their own thinking. Visit the Data Matters archive here.

Sign up for the Advancing a Free Society RSS feed to follow our data stream.

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Our new series Data Matters continues this week with data from Morris P. Fiorina, a Hoover Senior Fellow and Wendt Family Professor of Political Science at Stanford University.

Following the near daily tracking of the presidential race, it’s easy to lose perspective on what any poll or even any weekly average of multiple polls can tell us about what will happen on Election Day. This is especially true early on in the General election. If, as they say, a week in politics is a long time, then six months is a very long time. Improvement in or worsening of the U.S. economy, international crises, and events in the campaigns – combined with Americans’ increased attention to the candidates and the race as the autumn approaches – can lead to big shifts in support for the candidates between the early polls and the first Tuesday after the first Monday in November.

Professor Fiorina has gathered polling data from the Gallup Trial Heats in presidential elections that show how the early polling can be wide of the Election Day mark. In data from each presidential election since 1972, we can see early leaders, with seemingly comfortable margins of victory, go on to lose. And even when the eventual winner leads in the early polling, landslides disappear and tight races become blowouts.

Click on the image below to enlarge.

Professor Fiorina also provides analysis of the 2012 election in audio and video podcasts that are part of Hoover’s 2012 In Perspective series. The latest audio podcast, “2012 General Election Analysis – The View from the Start Line,” was released this week. You can access all the 2012 In Perspective content, including earlier 2012 election analysis podcasts, here.

With Data Matters, we highlight data relevant to public policy that Hoover fellows are using in their research. We feature original data, data from another source that Hoover fellows are presenting in a new way, or data that fellows find helpful in shaping their own thinking. Visit the Data Matters archive here.

Sign up for the Advancing a Free Society RSS feed to follow our data stream.

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Here is the second installment in our new series Data Matters.

Following last week’s inaugural post of data from John Cogan, this week Edward Lazear, a Hoover Senior Fellow, Stanford Professor of Economics, and former Chairman of the Council of Economic Advisers, offers us a comparative assessment of U.S. economic growth since the summer of 2009. The chart shows average GDP growth in the G-7 countries, including the Q1 2012 preliminary figures.

Since we began to emerge from the economic wreckage of the Financial Crisis, the U.S. has experienced stronger economic growth than France, Italy, Japan, and the U.K. But economic growth in Germany and Canada has outstripped growth in the U.S. The pattern in the data is materially the same if we move our end point back to Q4 2011.

Click on the image below to enlarge.

The potential for a stronger economic recovery demonstrated by two of our peers supports a reassessment of the U.S. government’s response to the Financial Crisis and economic policy actions over the last three years.

With Data Matters, we highlight data relevant to public policy that Hoover fellows are using in their research. We feature original data, data from another source that Hoover fellows are presenting in a new way, or data that fellows find helpful in shaping their own thinking.

Sign up for the Advancing a Free Society RSS feed to follow our data stream.

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Today, we add a new weekly feature to Advancing a Free Society. Each week, we will highlight data relevant to public policy that Hoover fellows are using in their research.

Our inaugural data post is a graph generated by John F. Cogan, the Leonard and Shirley Ely Senior Fellow at the Hoover Institution and a professor in the Public Policy Program at Stanford University. The graph shows federal government outlays as a percent of GDP from 1994 to 2022. The graph presents historical outlays and the striking contrast between two different future scenarios: one that follows the Obama administration’s budget and the other that follows the budget path that would be created under Paul Ryan’s plan.

Click on the image below to enlarge.

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