« How to save The New York Times? | Main | One path to the Georgist solution? »
Fifty Years of Economic History in one Figure
David Beckworth sums up a lot of recent economic history in one figure.
A few thoughts: I wish Arnold Kling were correct that inflation is around the corner. We could use some inflation to get back on track. Nominal wages are simply not flexible enough to get the job done in short order and there is much to fear from populist backlash.
See also the link above for a remarkably similar figure for the OECD which illustrates the US's role of monetary hegemon.
Posted by Alex Tabarrok on November 5, 2009 at 06:51 AM in Data Source, Economics | Permalink
Comments
'We could use some inflation to get back on track.'
Irving Fisher on the phone, prof. Tabarrok. And I think his call took less than 49 seconds to place, by the way.
Posted by: not_scottbot at Nov 5, 2009 7:01:30 AM
Excuse my ignorance but what's "nominal" all about?
Posted by: tom s. at Nov 5, 2009 7:57:46 AM
The U.S.' demographics don't as yet support a return to inflation (assuming that there is a demographic component to spending that affects its rate.)
Posted by: Ironman at Nov 5, 2009 8:03:12 AM
Until we have considerable wage increases in the U.S., we are going to face a world where the only attractive investments are trading opportunities.
Posted by: Mike S at Nov 5, 2009 8:28:31 AM
I don't have hard numbers, but I feel that we could help defeat deflation by lifting immigration barriers and restrictions. Wouldn't that be the most painless way?
Posted by: stinkaroo at Nov 5, 2009 8:36:26 AM
Is there a reason why the y-axis has a different scale for negative and positive numbers? Other than the obvious, that it is an attempt to make the situation seem much more dramatic than it is?
Posted by: ASG9000 at Nov 5, 2009 8:51:39 AM
the scales are the same. I do not see your problem.
Posted by: spencer at Nov 5, 2009 9:11:44 AM
I'm working under the current theory that we had inflation, but it was just hidden. Hidinflation.
Posted by: Andrew at Nov 5, 2009 9:15:23 AM
I think we're experiencing inflation right now....asset price inflation. I agree though that we could use a little inflation in goods prices/wages.
Posted by: Tim at Nov 5, 2009 9:46:37 AM
Better comparison would be US nominal consumption vs non-US OECD nominal consumption.
U.S. consumption being something over 50% of OECD consumption is of couse driving the OECD trend.
Posted by: Mark at Nov 5, 2009 10:40:06 AM
how does inflating the money supply improve our mix of productive capital? And how does price inflation of goods improve our standard of living?...when food prices, health care and tuitions rise it decreases my standard of living. Of course silver gold and oil price increases are good for me because I am betting that the dollar will continue on it's path to 3rd world status. Too many spineless idiots running this country and the Fed.
Posted by: Gabe at Nov 5, 2009 10:50:53 AM
Depends on the source of inflation.
If inflation is caused by oil price spike, consumer discretionary spending will collapse as it did last year. Along with an oil price spike, you would expect a rapidly declining dollar and an increase in imported commodity prices.
If inflation is of domestic origin and confined to domestic products (housing, office buildings) with domestic debt attached to them, or services, then fine: but, how would have such inflation when we are operating at 65% of capacity?
I would worry more about commodity inflation with the following bad scenario: commodity prices increase worldwide, Chinese manufacturers absorb the commodity inflation and do not raise prices, and US domestic manufacturers, unable to raise prices, go out of business.
From an optics perspective, it would not look like the Chinese manufacturers "cut" prices, but, because they did not pass on commodity increases, the effect would be the same in real terms.
More to the point of your post, I believe Larry Summers wrote a piece on how inflation might be a good thing in this situation, but so far I couldn't find it.
Posted by: Bill at Nov 5, 2009 11:37:31 AM
You should compare this to my chart of Labor's Share of nominal output in my post on productivity at Angry Bear.
http://angrybear.blogspot.com/
Posted by: spencer at Nov 5, 2009 12:07:24 PM
May I be explained what this is all about? What does the picture teach us that is interesting? Or thoughtful? Or original? Or even barely coherent?
I am thick, I do not get it ...
Posted by: Michele Boldrin at Nov 5, 2009 12:41:18 PM
Free exchange elaborates
http://www.economist.com/blogs/freeexchange/2009/11/fifty_years_of_nominal_spendin.cfm
Posted by: anon at Nov 5, 2009 3:31:55 PM
To tom s.: Nominal means it is not adjusted for inflation.
Suppose 100 goods that cost $5 are sold. Nominal GDP is $500. If the price increases to $6 and production/sales remain the same, real GDP does not change, but nominal GDP increases to $600. NGDP is a way to combine inflation and GDP into one statistic that some economists find useful to gauge how the economy is doing from a monetary policy perspective.
Posted by: azmyth at Nov 5, 2009 5:36:17 PM
A larger fraction of total economic output is flowing to a smaller fraction of the populace and this smaller fraction is more inclined to save, not spend. This means more asset inflation and less consumer price inflation when monetary policy is expansionist.
Posted by: Randall Parker at Nov 5, 2009 9:46:24 PM
Even you dismal scientists must realize Depression is here. 2008 was just the coming attraction...the drama is only just beginning...keep reinflating that debt bubble...it's going to be a long way down.
Posted by: Nik Kondratieff at Nov 5, 2009 10:03:19 PM
Why would it be bad if we ended up at 0% nominal growth on spending for a while?
Posted by: Go Horns! at Nov 5, 2009 10:24:19 PM
This chart bothers me, but perhaps I do not understand its purpose.
Changes in nominal spending are as much a result of Federal Reserve policy as anything else, right? Much of the trend change from the 1970's to the 1980's represents changes from Burns-Miller policies to Volcker policies, correct? Likewise, the tech bubble spree and housing bubble spree represent Greenspan easy money, don't they?
Suppose we adjusted the chart to changes in real spending. Would the larger proportional growth in available workforce in the 1970's account for a chunk of the 1970's spending spree?
Average annual growth of civilian workforce
1960's ..... 1.7%
1970's ..... 2.7%
1980's ..... 1.7%
1990's ..... 1.2%
Source: CPS, Employment status of the civilian noninstitutional population
Posted by: John Dewey at Nov 6, 2009 4:11:16 PM
If you were on a fixed income, I doubt you would welcome inflation. I seem to remember the 70's found inflation to be a problem.
Rick
Posted by: Rick Caird at Nov 6, 2009 6:06:04 PM
re: "We could use some inflation to get back on track. “
Yes, I know CPI shows virtually no inflation, mainly because food and shelter prices have been declining. But agricultural prices have already begun headed higher. And even the housing market is showing strong signs of life. Moreover, scratch beneath the surface, and you find plenty of signs of inflation outside of those two sectors:
* Car rental prices are up nearly 50 percent in past year,
* small business’ health insurance premiums are seeing their premiums rise by about 15 percent for the coming year.
* CalPERS is going to raise long-term care insurance premiums between 15 and 25 percent.
* Many companies are reporting that they have raised the prices of their products.
* The bond market is signaling the highest inflationary expectations in more than a year.
* Demand for low-end houses in some post-bubble cities, such as Las Vegas and San Diego, is very strong. Nationally, housing prices have been rising in recent months.
* Gas prices at the pump are increasing.
* 44 percent of companies that recently implemented pay cuts have rescinded them.
* Airlines are raising fares and instituting all manner of annoying fees.
* Cities are raising sewer fees and water fees.
* New cars and used cars are getting more expensive.
* College tuition costs increased 6.5 percent this fall.
That’s just a partial list of recent posts at Inflation Watch (http://inflationwatch.wordpress.com/) since I co-founded that blog just over a month ago. Links supporting all of the above statements are available at http://inflationwatch.wordpress.com/2009/11/07/blogger-yearns-for-more-inflation/
After reviewing the evidence supplied above, does Mr. Tabarrok still think what the economy needs is more inflation?
Posted by: writejesse at Nov 7, 2009 6:22:00 AM
Housing prices are rising because the zombie banks (and now the FedGov via Fannie, Freddie and FHA) are sitting on a nearly infinite amount of shadow inventory, not letting it hit the market, the no-money-down / bad credit mortgage is back (thanks to the Fed), and non-payment of mortgage means a free place to live for 12-24+ months instead of nonpayment of rent which gets you evicted in 30-60 days.
Posted by: Matthew at Nov 7, 2009 7:20:14 AM
regardless of the reasons, housing prices are rising. In some cities, they are skyrocketing. As for shadow inventory, the impact probably will be smaller than housing bears believe. See:
http://inflationwatch.wordpress.com/2009/10/19/why-housing-bears-are-probably-wrong-about-the-impact-of-shadow-inventory/
Posted by: writejesse at Nov 7, 2009 9:13:53 AM
"Would the larger proportional growth in available workforce in the 1970's account for a chunk of the 1970's spending spree?"
Yes.
Further, if we adjusted the graph to reflect per capita spending, then that plunging line at the end would have to be extended downward.
Posted by: AVeryRoughRoadAhead at Nov 8, 2009 4:32:06 PM
