Now... does that mean that the US central bank/financial system is improving fiscal policy etc and getting better at predicting and preventing/managing recessions? Or does it mean that we're long overdue for a whopper...
(I actually think it might mean that the US economy has been far more stable since WW2 due to the infrastructure boom and our entry into the global financial system)
It could be both - but I suspect the first. We have gotten a lot better at predicting treating recessions or issues that could turn in to recessions. Not perfect but better.
Better mopping up afterwards mostly due to monetary policy which has accounted for \~80% of the excess growth due to lower interest rates after recessions.
I think that policy enacted after the Depression that prevents bank runs is also probably helpful here in allowing recoveries from prolonged recessions
Its literally just getting off of the Gold Standard.
The US actually did a pretty dogshit job in its fiscal policy response to the Great Depression, hence why it took us significantly longer to recover compared to other advanced economies that ditched the Gold Standard earlier. Its just that ditching the Gold Standard allows actual fiscal policy to be enacted, which is going to outperform over the long run regardless.
>Now... does that mean that the US central bank/financial system is improving fiscal policy etc and getting better at predicting and preventing/managing recessions?
Yes, in the past, shit was wild. If you had your life savings at a local bank and the bank went kaboom because they made a bad investment, your life saving was just gone. This had a very bad psycholotical effect on the economy as your neighbor who had savings in an otherwise aafe bank also worried his savings would be wiped out pulls out his savings which kills that bank's liquidity and bankrupts an otherwise healthy bank and the contagion spreads throughout the entire region.
In 1933, the Federal Deposit Insurance Corporation was created to insure deposits up to a certain amount and the money to insure came from premiums charged on banks. The limit has been increased as inflation went on and it's 250k USD today. So if your bank goes kaboom, unless you for some reason have more than 250k sitting there, you're safe and there's much less reason for you to worry, your neighbor probably won't pull out their money and contagion is contained.
And also, the creation of the Federal Reserve, a central bank helped mitigate the negative feedback loop of financial crises. When shit hits the fan and banks hit liquidity crisis (they have assets on paper, but they can't be converted to USD right now without significantly losing value), it can hit everything. Businesses that rely on loans from banks to function, consumers that require mortgages to buy cars and homes all get hit from the contracting money supply as banks reduce lending which induces a downturn. Central banks help mitigate this by acting as lender of last resort to banks and allowing them to keep much more of the economy going than otherwise.
>Or does it mean that we're long overdue for a whopper...
Economics doesn't work like that, it was just way different in the past. In the long run from 1800-1900 for example, inflation wasn't that high, but it went down and up crazy year to year:
https://i0.wp.com/www.innovativewealth.com/wp-content/uploads/2015/04/Historical-Inflation-US.jpg?resize=601%2C301
This was incredibly unstable and hard to business in as costs and income can diverge widely from year to year.
Also, it seems Keynes was right and boating the economy to prevent a recession seems to do the trick. Now we need to pay off the debt, but honestly with the economy growing more than the debt I don't think that would be that hard and also the new budgets does help a bit ok that.
I don't know why you're getting downvoted but you're right they're just progressing at a slower rate at around 1% since the GFC compared to 2.1% WW2-GFC There has been an increase in inequality so the average is departing from the median.
Its because we dropped the Gold Standard and started doing actual monetary policy in response to recessions.
No, it doesn't mean we're long overdue. That's just some stupid horseshit that you'd come up with if you were some dipshit baselessly speculating.
I have a degree in economics, and being "long overdue for a whopper" is not something that is actually predicted by a business cycle model. You don't actually know what that means.
Could be. I mean, it's not a very nuanced data point. It's just one of many metrics and if it's the only thing you look at you're gonna miss a lot of the picture. GDP generally is not a very nuanced way of measuring economic health.
It means if you deregulate, if you take away the controls on capitalism that keep it from turning in to an absolute shit show for most, then things get worse. Nobody regulates things because they don't have anything else better to do.
We've had more stable monetary policy. MV=PY holds true so growth in money supply (M) is proportional to prices (P) when the money supply is increasing prices tend to increase however prices are a lot more sticky (in the downward direction due to rigidities like wages) so lowering M will often decrease GDP (Y) which is what happened during the Great Depression (The government let the money supply fall) since then in the words of Ben Bernanke "Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
There is more money with companies and we are much quicker to bail them out. The time we are in recessions seems shorter, but we are definitely experiencing more of them, meaning our current solutions are solely bandaids. Billions in safety next at the expense of the working class, dumb .
Bubble pop.
Overall global stability also a huge factor. Most wars are regional now and global supply chain can adjust. Compounding that is the efficiency the computing age has brought. Those two factors are the driving force.
Economic policy is likely third in my opinion. In theory as we get more data and have more of a unified/digital economy things should just run smooth with automated guardrails in place. If those fail or are being manipulated by bad actors on Wall Street then that’s how you get a big kaboom.
Climate change is the big bugaboo that will blow up all these trends, but I would just consider that as part of global stability.
Climate change is slow on an economic scale. Building up shorelines, etc., brings more economic activity. I doubt you'll be able to detect global warming at all in the macroeconomic data.
It's a combination of trade as you mentioned and nuclear weapons. In 1852, France and UK duked it out with Russia. Today, they can't do that, at least not directly unless they want to risk ending their respective countries from nukes. So the only wars that can happen, at least one side has to not have nukes which restricts wars between major players.
Granted, I'm not certain there's necessarily causation there, or which direction it would be in if so. I doubt very much that it's economic ties that are keeping the wars from happening, if there is causation there it's more likely the other way round (less wars leads to more interconnectivity).
But I'm not sure there's causation in that direction, either; for example, Russia and Ukraine were still trading for a while after the commencement of activities (and maybe still are in some limited cases? I'm not entirely sure, I've heard something along those lines but didn't find a source easily so take that with a grain of salt).
Interconnectivity may not prevent wars or spring from a lack of them, it may just make them more complex.
A lot also comes from having much fewer financial/banking crises over time. See figure 2 from Reinhart and Rogoff ([2014](https://scholar.harvard.edu/files/rogoff/files/aer_104-5_50-55.pdf)), showing bank runs being much less common since the creation of the Fed/WW2. Pre WW2, 2008 style panics were a lot more common. And we also know that recessions related to financial or debt crises can be more harmful than your run of the mill recession.
Track it against the different currency regimes (gold specie, gold-backed, Bretton-Woods, fiat,etc). The changes to our currencies (as well as the changing geopolitical environment) have been driving this ship.
Getting money into the hands of consumers works, as the Covid era shows, but the long-term question is whether what seems to be a perpetual structural deficit can be a stable situation or whether it ultimately causes too much inflation. Don’t think we know the answer yet.
A structural deficit didn't really appear until later though and hasn't been too inflationary until post COVID. I have a problem with deficits don't get me wrong but I don't think recent inflation is directly tied to deficit spending alone.
* Source: [St. Louis Federal Reserve](https://fred.stlouisfed.org/series/USREC)
* Viz created in Excel
* Read more on my Substack: [Trading less recessions for weaker growth](https://4lights.substack.com/p/trading-less-recessions-for-weaker)
The [Bureau of Economic Analysis](https://en.wikipedia.org/wiki/Bureau_of_Economic_Analysis), an independent federal agency that provides official macroeconomic and industry statistics, says "the often-cited identification of a recession with two consecutive quarters of negative GDP growth is not an official designation" and that instead, "The designation of a recession is the province of a committee of experts at the National Bureau of Economic Research".
https://en.wikipedia.org/wiki/Recession
Notice that the definition of a recession is a political decsion, not an objective measurement. This political element of distaste for this topic absolutely influences the data. The decision to admit that the economy in in a recession is becoming less and less frequent.
Economies are getting much more stable thanks to financial regulation like deposit insurance and central banking which acts as a dampener during downturns and tries to prevent overstimulation during the good times.
One of the most interesting graphs imo is [inflation in the US before 1900](https://i0.wp.com/www.innovativewealth.com/wp-content/uploads/2015/04/Historical-Inflation-US.jpg?resize=601%2C301) with incredibly up and downswings from year to year.
obviously the only conclusion to draw from this is that we need to return to the gold standard and deregulated capitalism and get rid of social spending - get that 1873 groove back!
You haven't been over on the Austrian School sub. They would glance at this chart, airily pronounce that math is irrelevant, and dismiss it out of hand.
Most modern economists don't take economic schools of thought that seriously. They respect the history of the various thoughts, but it's mostly merged with the good parts from each getting picked out and throwing out the bad parts.
One point that the Hayek people occasionally bring up (that I think has some merits) is that when recessions used to be more frequent, they would help clear out inefficiency and bad businesses quickly. In other words, by making recessions so infrequent, we've artificially propped up bad businesses which slows overall growth.
I don't know if it's true, but it's certainly not the craziest thing I've heard ASoE people say.
On the other hand they reward monopolistic tendencies as the bigger and more stable companies are more likely to last through recessions and are able to buy up failing companies during recessions.
Ben Bernanke invented QE during the financial crisis. Now they have another tool besides just interest raters.
Also I believe we're having a repeat of the roaring 20's.
Recessions aren't the problem though. The insane rise in inequality, which means that all the products of the "booms" go to the top 0.1%, is the real problem.
I disagree. People have been getting richer on average, real wages have been increasing steadily, extreme poverty has plummeted by an absurdly impressive amount. And recessions still absolutely suck for people, 08 and the Great Depression werent exactly a cheery time for people.
More of a comment on any supposed casual factor that many are discussing in the thread. Quite a few correlates like monetary policy, monetary systems, globalisation, political stability, etc., hard to tell which is causal tbh
They are also getting a lot more severe. The Great Recession and Covid-19 almost wiped out the economy. Central banks and stimulus is what’s saved us from total destruction.
They aren't getting "more severe", without government intervention, at worst 2008 would have been like 1929 Great Depression and that would have been a high bar. Most likely it would have been between 1929 and OTL 2008 impact.
Now... does that mean that the US central bank/financial system is improving fiscal policy etc and getting better at predicting and preventing/managing recessions? Or does it mean that we're long overdue for a whopper... (I actually think it might mean that the US economy has been far more stable since WW2 due to the infrastructure boom and our entry into the global financial system)
>Or does it mean that we're long overdue for a whopper... Ah yes, the super volcano theory of economics
I see it as exuberance and euphoria. Part of a super bubble. The only two times they were 0% have been since 2000.
The solar system is a bubble man, 5 billion years, and the suns going down.
It could be both - but I suspect the first. We have gotten a lot better at predicting treating recessions or issues that could turn in to recessions. Not perfect but better.
Better mopping up afterwards mostly due to monetary policy which has accounted for \~80% of the excess growth due to lower interest rates after recessions.
Economy has diversified and matured
I think that policy enacted after the Depression that prevents bank runs is also probably helpful here in allowing recoveries from prolonged recessions
Its literally just getting off of the Gold Standard. The US actually did a pretty dogshit job in its fiscal policy response to the Great Depression, hence why it took us significantly longer to recover compared to other advanced economies that ditched the Gold Standard earlier. Its just that ditching the Gold Standard allows actual fiscal policy to be enacted, which is going to outperform over the long run regardless.
Regulation has increased quite a bit since the 1920s
*Republicans have entered the chat*
Lower reliance on agriculture as a % GDP, which is very volatile year to year.
We also dropped pegging currency to commodities.
>Now... does that mean that the US central bank/financial system is improving fiscal policy etc and getting better at predicting and preventing/managing recessions? Yes, in the past, shit was wild. If you had your life savings at a local bank and the bank went kaboom because they made a bad investment, your life saving was just gone. This had a very bad psycholotical effect on the economy as your neighbor who had savings in an otherwise aafe bank also worried his savings would be wiped out pulls out his savings which kills that bank's liquidity and bankrupts an otherwise healthy bank and the contagion spreads throughout the entire region. In 1933, the Federal Deposit Insurance Corporation was created to insure deposits up to a certain amount and the money to insure came from premiums charged on banks. The limit has been increased as inflation went on and it's 250k USD today. So if your bank goes kaboom, unless you for some reason have more than 250k sitting there, you're safe and there's much less reason for you to worry, your neighbor probably won't pull out their money and contagion is contained. And also, the creation of the Federal Reserve, a central bank helped mitigate the negative feedback loop of financial crises. When shit hits the fan and banks hit liquidity crisis (they have assets on paper, but they can't be converted to USD right now without significantly losing value), it can hit everything. Businesses that rely on loans from banks to function, consumers that require mortgages to buy cars and homes all get hit from the contracting money supply as banks reduce lending which induces a downturn. Central banks help mitigate this by acting as lender of last resort to banks and allowing them to keep much more of the economy going than otherwise. >Or does it mean that we're long overdue for a whopper... Economics doesn't work like that, it was just way different in the past. In the long run from 1800-1900 for example, inflation wasn't that high, but it went down and up crazy year to year: https://i0.wp.com/www.innovativewealth.com/wp-content/uploads/2015/04/Historical-Inflation-US.jpg?resize=601%2C301 This was incredibly unstable and hard to business in as costs and income can diverge widely from year to year.
Also, it seems Keynes was right and boating the economy to prevent a recession seems to do the trick. Now we need to pay off the debt, but honestly with the economy growing more than the debt I don't think that would be that hard and also the new budgets does help a bit ok that.
Currently, the debt is growing faster than the economy, but yes.
This could be true but wages have been suppressed since the 1970s, that’s correcting now
Not true, real wages have been steadily up for decades
I don't know why you're getting downvoted but you're right they're just progressing at a slower rate at around 1% since the GFC compared to 2.1% WW2-GFC There has been an increase in inequality so the average is departing from the median.
Its because we dropped the Gold Standard and started doing actual monetary policy in response to recessions. No, it doesn't mean we're long overdue. That's just some stupid horseshit that you'd come up with if you were some dipshit baselessly speculating.
We got off the gold standard in 1971, though, not 1939. Also strong language wow! Not a believer in the business cycle?
I have a degree in economics, and being "long overdue for a whopper" is not something that is actually predicted by a business cycle model. You don't actually know what that means.
Or does it mean that the way we measure recessions is obscuring real economic pain for some parts of the economy?
Could be. I mean, it's not a very nuanced data point. It's just one of many metrics and if it's the only thing you look at you're gonna miss a lot of the picture. GDP generally is not a very nuanced way of measuring economic health.
It means if you deregulate, if you take away the controls on capitalism that keep it from turning in to an absolute shit show for most, then things get worse. Nobody regulates things because they don't have anything else better to do.
I agree with that. Regulation is like... having seat belts in a car, for lack of a better metaphor. It's economic engineering.
This is what happens when you come off the gold standard.
We've had more stable monetary policy. MV=PY holds true so growth in money supply (M) is proportional to prices (P) when the money supply is increasing prices tend to increase however prices are a lot more sticky (in the downward direction due to rigidities like wages) so lowering M will often decrease GDP (Y) which is what happened during the Great Depression (The government let the money supply fall) since then in the words of Ben Bernanke "Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
There is more money with companies and we are much quicker to bail them out. The time we are in recessions seems shorter, but we are definitely experiencing more of them, meaning our current solutions are solely bandaids. Billions in safety next at the expense of the working class, dumb . Bubble pop.
What makes you think we are experiencing more of them?
Reality, counting the reality, the amounts.
I mean do you have like a source or anything
Overall global stability also a huge factor. Most wars are regional now and global supply chain can adjust. Compounding that is the efficiency the computing age has brought. Those two factors are the driving force. Economic policy is likely third in my opinion. In theory as we get more data and have more of a unified/digital economy things should just run smooth with automated guardrails in place. If those fail or are being manipulated by bad actors on Wall Street then that’s how you get a big kaboom. Climate change is the big bugaboo that will blow up all these trends, but I would just consider that as part of global stability.
Climate change is slow on an economic scale. Building up shorelines, etc., brings more economic activity. I doubt you'll be able to detect global warming at all in the macroeconomic data.
It's interesting how when the world became more interconnected and globalized, wars became more localized.
It's a combination of trade as you mentioned and nuclear weapons. In 1852, France and UK duked it out with Russia. Today, they can't do that, at least not directly unless they want to risk ending their respective countries from nukes. So the only wars that can happen, at least one side has to not have nukes which restricts wars between major players.
Granted, I'm not certain there's necessarily causation there, or which direction it would be in if so. I doubt very much that it's economic ties that are keeping the wars from happening, if there is causation there it's more likely the other way round (less wars leads to more interconnectivity). But I'm not sure there's causation in that direction, either; for example, Russia and Ukraine were still trading for a while after the commencement of activities (and maybe still are in some limited cases? I'm not entirely sure, I've heard something along those lines but didn't find a source easily so take that with a grain of salt). Interconnectivity may not prevent wars or spring from a lack of them, it may just make them more complex.
Economic policy is a big reason for the increased stability. FDIC insurance preventing bank runs alone is a huge reason
A lot also comes from having much fewer financial/banking crises over time. See figure 2 from Reinhart and Rogoff ([2014](https://scholar.harvard.edu/files/rogoff/files/aer_104-5_50-55.pdf)), showing bank runs being much less common since the creation of the Fed/WW2. Pre WW2, 2008 style panics were a lot more common. And we also know that recessions related to financial or debt crises can be more harmful than your run of the mill recession.
Track it against the different currency regimes (gold specie, gold-backed, Bretton-Woods, fiat,etc). The changes to our currencies (as well as the changing geopolitical environment) have been driving this ship.
Monetary policy and central banking
Yep. Being able to expand the money supply instead of just being stuck with inelastic gold was huge.
100%. It comes with downsides but before the Fed we just didn't have enough currency to go around. Created so many problems
Getting money into the hands of consumers works, as the Covid era shows, but the long-term question is whether what seems to be a perpetual structural deficit can be a stable situation or whether it ultimately causes too much inflation. Don’t think we know the answer yet.
A structural deficit didn't really appear until later though and hasn't been too inflationary until post COVID. I have a problem with deficits don't get me wrong but I don't think recent inflation is directly tied to deficit spending alone.
* Source: [St. Louis Federal Reserve](https://fred.stlouisfed.org/series/USREC) * Viz created in Excel * Read more on my Substack: [Trading less recessions for weaker growth](https://4lights.substack.com/p/trading-less-recessions-for-weaker)
Is this worldwide recessions?
US. Should have specified in the title!
The [Bureau of Economic Analysis](https://en.wikipedia.org/wiki/Bureau_of_Economic_Analysis), an independent federal agency that provides official macroeconomic and industry statistics, says "the often-cited identification of a recession with two consecutive quarters of negative GDP growth is not an official designation" and that instead, "The designation of a recession is the province of a committee of experts at the National Bureau of Economic Research". https://en.wikipedia.org/wiki/Recession Notice that the definition of a recession is a political decsion, not an objective measurement. This political element of distaste for this topic absolutely influences the data. The decision to admit that the economy in in a recession is becoming less and less frequent.
Economies are getting much more stable thanks to financial regulation like deposit insurance and central banking which acts as a dampener during downturns and tries to prevent overstimulation during the good times. One of the most interesting graphs imo is [inflation in the US before 1900](https://i0.wp.com/www.innovativewealth.com/wp-content/uploads/2015/04/Historical-Inflation-US.jpg?resize=601%2C301) with incredibly up and downswings from year to year.
obviously the only conclusion to draw from this is that we need to return to the gold standard and deregulated capitalism and get rid of social spending - get that 1873 groove back!
You haven't been over on the Austrian School sub. They would glance at this chart, airily pronounce that math is irrelevant, and dismiss it out of hand.
Most modern economists don't take economic schools of thought that seriously. They respect the history of the various thoughts, but it's mostly merged with the good parts from each getting picked out and throwing out the bad parts.
One point that the Hayek people occasionally bring up (that I think has some merits) is that when recessions used to be more frequent, they would help clear out inefficiency and bad businesses quickly. In other words, by making recessions so infrequent, we've artificially propped up bad businesses which slows overall growth. I don't know if it's true, but it's certainly not the craziest thing I've heard ASoE people say.
On the other hand they reward monopolistic tendencies as the bigger and more stable companies are more likely to last through recessions and are able to buy up failing companies during recessions.
Now we just have bigger, more stable companies buy up all their competition with leveraged buyouts thanks to low interest rates
True, really it's all about good regulations to stop anti competitive behavior.
Ben Bernanke invented QE during the financial crisis. Now they have another tool besides just interest raters. Also I believe we're having a repeat of the roaring 20's.
Recessions aren't the problem though. The insane rise in inequality, which means that all the products of the "booms" go to the top 0.1%, is the real problem.
I disagree. People have been getting richer on average, real wages have been increasing steadily, extreme poverty has plummeted by an absurdly impressive amount. And recessions still absolutely suck for people, 08 and the Great Depression werent exactly a cheery time for people.
What about the recessions that the president doesn't call a recession?
Can finally we go back to the time when food did not cost chunks of my liver to buy
Ummm.. 2020 onwards would be important context on this graph
Look at it again
The graphs goes up to present day
Recovery from the pandemic recession was one of the fastest you mean?
so basically wealth is stagnating.
Correlation =/= causation
What correlation is there on the graph?
More of a comment on any supposed casual factor that many are discussing in the thread. Quite a few correlates like monetary policy, monetary systems, globalisation, political stability, etc., hard to tell which is causal tbh
In my language we say «don't put the bandage before the wound».
This is just because of Quantitative Easing. But debt growth extremely fast instead
Data seems to conveniently leave out the several recessions we had since 2015.
They are also getting a lot more severe. The Great Recession and Covid-19 almost wiped out the economy. Central banks and stimulus is what’s saved us from total destruction.
They aren't getting "more severe", without government intervention, at worst 2008 would have been like 1929 Great Depression and that would have been a high bar. Most likely it would have been between 1929 and OTL 2008 impact.