Sunday, April 24, 2016

IMF View of World Economy and Finance, Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates, Collapse of United States Dynamism of Income Growth and Employment Creation, United States Commercial Banks Assets and Liabilities, World Cyclical Slow Growth and Global Recession Risk: Part VII

 

IMF View of World Economy and Finance, Squeeze of Economic Activity by Carry Trades Induced by Zero Interest Rates, Collapse of United States Dynamism of Income Growth and Employment Creation, United States Commercial Banks Assets and Liabilities, World Cyclical Slow Growth and Global Recession Risk

Carlos M. Pelaez

© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016

I IMF View of World Economy and Finance

II IB Collapse of United States Dynamism of Income Growth and Employment Creation

IIA United States Commercial Banks Assets and Liabilities

III World Financial Turbulence

IIIA Financial Risks

IIIE Appendix Euro Zone Survival Risk

IIIF Appendix on Sovereign Bond Valuation

IV Global Inflation

V World Economic Slowdown

VA United States

VB Japan

VC China

VD Euro Area

VE Germany

VF France

VG Italy

VH United Kingdom

VI Valuation of Risk Financial Assets

VII Economic Indicators

VIII Interest Rates

IX Conclusion

References

Appendixes

Appendix I The Great Inflation

IIIB Appendix on Safe Haven Currencies

IIIC Appendix on Fiscal Compact

IIID Appendix on European Central Bank Large Scale Lender of Last Resort

IIIG Appendix on Deficit Financing of Growth and the Debt Crisis

IIIGA Monetary Policy with Deficit Financing of Economic Growth

IIIGB Adjustment during the Debt Crisis of the 1980s

Appendix to Section VI Valuation of Risk Financial Assets:

Preceding Table VI-6:

The Communiqué of the Istanbul meeting of G20 Finance Ministers and Central Bank Governors on February 10, 2015, sanctions the need of unconventional monetary policy with warning on collateral effects (http://www.g20.utoronto.ca/2015/150210-finance.html):

“We agree that consistent with central banks' mandates, current economic conditions require accommodative monetary policies in some economies. In this regard, we welcome that central banks take appropriate monetary policy action. The recent policy decision by the ECB aims at fulfilling its price stability mandate, and will further support the recovery in the euro area. We also note that some advanced economies with stronger growth prospects are moving closer to conditions that would allow for policy normalization. In an environment of diverging monetary policy settings and rising financial market volatility, policy settings should be carefully calibrated and clearly communicated to minimize negative spillovers.”

Banking was important in facilitating economic growth in historical periods (Cameron 1961, 1967, 1972; Cameron et al. 1992). Banking is also important currently because small- and medium-size business may have no other form of financing than banks in contrast with many options for larger and more mature companies that have access to capital markets. Calomiris and Haber (2014) find that broad voting rights and institutions restricting coalitions of bankers and populists ensure stable banking systems and access to credit. Summerhill (2015) finds compelling evidence that sovereign credibility is insufficient to develop financial intermediation required for economic growth in the presence of inadequate political institutions.

Bernanke (2010WP) and Yellen (2011AS) reveal the emphasis of monetary policy on the impact of the rise of stock market valuations in stimulating consumption by wealth effects on household confidence. Table VI-5 shows a gain by Apr 29, 2011 in the DJIA of 14.3 percent and of the S&P 500 of 12.5 percent since Apr 26, 2010, around the time when sovereign risk issues in Europe began to be acknowledged in financial risk asset valuations. The last row of Table VI-5 for Apr 22, 2016, shows that the S&P 500 is now 72.6 percent above the Apr 26, 2010 level and the DJIA is 60.7 percent above the level on Apr 26, 2010. Multiple rounds of risk aversion eroded earlier gains, showing that risk aversion can destroy market value even with zero interest rates. Relaxed risk aversion has contributed to recovery of valuations. Much the same as zero interest rates and quantitative easing have not had any effects in recovering economic activity while distorting financial markets and resource allocation.

Table VI-5, Percentage Changes of DJIA and S&P 500 in Selected Dates

 

∆% DJIA from  prior date

∆% DJIA from
Apr 26 2010

∆% S&P 500 from prior date

∆% S&P 500 from
Apr 26 2010

Apr 26, 2010

       

May 6/10

-6.1

-6.1

-6.9

-6.9

May 26/10

-5.2

-10.9

-5.4

-11.9

Jun 8/10

-1.2

-11.3

2.1

-12.4

Jul 2/10

-2.6

-13.6

-3.8

-15.7

Aug 9/10

10.5

-4.3

10.3

-7.0

Aug 31/10

-6.4

-10.6

-6.9

-13.4

Nov 5/10

14.2

2.1

16.8

1.0

Nov 30/10

-3.8

-3.8

-3.7

-2.6

Dec 17/10

4.4

2.5

5.3

2.6

Dec 23/10

0.7

3.3

1.0

3.7

Dec 31/10

0.03

3.3

0.07

3.8

Jan 7  2011

0.8

4.2

1.1

4.9

Jan 14/11

0.9

5.2

1.7

6.7

Jan 21/11

0.7

5.9

-0.8

5.9

Jan 28/11

-0.4

5.5

-0.5

5.3

Feb 4/11

2.3

7.9

2.7

8.1

Feb 11/11

1.5

9.5

1.4

9.7

Feb 18/11

0.9

10.6

1.0

10.8

Feb 25/11

-2.1

8.3

-1.7

8.9

Mar 4/11

0.3

8.6

0.1

9.0

Mar 11/11

-1.0

7.5

-1.3

7.6

Mar 18/11

-1.5

5.8

-1.9

5.5

Mar 25/11

3.1

9.1

2.7

8.4

Apr 1/11

1.3

10.5

1.4

9.9

Apr 8/11

0.03

10.5

-0.3

9.6

Apr 15/11

-0.3

10.1

-0.6

8.9

Apr 22/11

1.3

11.6

1.3

10.3

Apr 29/11

2.4

14.3

1.9

12.5

May 6/11

-1.3

12.8

-1.7

10.6

May 13/11

-0.3

12.4

-0.2

10.4

May 20/11

-0.7

11.7

-0.3

10.0

May 27/11

-0.6

11.0

-0.2

9.8

Jun 3/11

-2.3

8.4

-2.3

7.3

Jun 10/11

-1.6

6.7

-2.2

4.9

Jun 17/11

0.4

7.1

0.04

4.9

Jun 24/11

-0.6

6.5

-0.2

4.6

Jul 1/11

5.4

12.3

5.6

10.5

Jul 8/11

0.6

12.9

0.3

10.9

Jul 15/11

-1.4

11.4

-2.1

8.6

Jul 22/11

1.6

13.2

2.2

10.9

Jul 29/11

-4.2

8.4

-3.9

6.6

Aug 05/11

-5.8

2.1

-7.2

-1.0

Aug 12/11

-1.5

0.6

-1.7

-2.7

Aug 19/11

-4.0

-3.5

-4.7

-7.3

Aug 26/11

4.3

0.7

4.7

-2.9

Sep 02

-0.4

0.3

-0.2

-3.1

Sep 09/11

-2.2

-1.9

-1.7

-4.8

Sep 16/11

4.7

2.7

5.4

0.3

Sep 23/11

-6.4

-3.9

-6.5

-6.2

Sep 30/11

1.3

-2.6

-0.4

-6.7

Oct 7/11

1.7

-0.9

2.1

-4.7

Oct 14/11

4.9

3.9

5.9

1.0

Oct 21/11

1.4

5.4

1.1

2.2

Oct 28/11

3.6

9.2

3.8

6.0

Nov 04/11

-2.0

6.9

-2.5

3.4

Nov 11/11

1.4

8.5

0.8

4.3

Nov 18/11

-2.9

5.3

-3.8

0.3

Nov 25/11

-4.8

0.2

-4.7

-4.4

Dec 02/11

7.0

7.3

7.4

2.7

Dec 09/11

1.4

8.7

0.9

3.6

Dec 16/11

-2.6

5.9

-2.8

0.6

Dec 23/11

3.6

9.7

3.7

4.4

Dec 30/11

-0.6

9.0

-0.6

3.8

Jan 6 2012

1.2

10.3

1.6

5.4

Jan 13/12

0.5

10.9

0.9

6.4

Jan 20/12

2.4

13.5

2.0

8.5

Jan 27/12

-0.5

13.0

0.1

8.6

Feb 3/12

1.6

14.8

2.2

11.0

Feb 10/12

-0.5

14.2

-0.2

10.8

Feb 17/12

1.2

15.6

1.4

12.3

Feb 24/12

0.3

15.9

0.3

12.7

Mar 2/12

0.0

15.8

0.3

13.0

Mar 9/12

-0.4

15.3

0.1

13.1

Mar 16/12

2.4

18.1

2.4

15.9

Mar 23/12

-1.1

16.7

-0.5

15.3

Mar 30/12

1.0

17.9

0.8

16.2

Apr 6/12

-1.1

16.6

-0.7

15.3

Apr 13/12

-1.6

14.7

-2.0

13.1

Apr 20/12

1.4

16.3

0.6

13.7

Apr 27/12

1.5

18.1

1.8

15.8

May 4/12

-1.4

16.4

-2.3

12.9

May 11/12

-1.7

14.4

-1.1

11.7

May 18/12

-3.5

10.4

-4.3

6.4

May 25/12

0.7

11.2

1.7

8.7

Jun 1/12

-2.7

8.2

-3.0

5.4

Jun 8/12

3.6

12.0

3.7

9.4

Jun 15/12

1.7

13.9

1.3

10.8

Jun 22/12

-1.0

12.8

-0.6

10.1

Jun 29/12

1.9

14.9

2.0

12.4

Jul 6/12

-0.8

14.0

-0.5

11.8

Jul 13/12

0.0

14.0

0.2

11.9

Jul 20/12

0.4

14.4

0.4

12.4

Jul 27/12

2.0

16.7

1.7

14.3

Aug 3/12

0.2

16.9

0.4

14.8

Aug 10/12

0.9

17.9

1.1

16.0

Aug 17/12

0.5

18.5

0.9

17.0

Aug 24/12

-0.9

17.4

-0.5

16.4

Aug 31/12

-0.5

16.8

-0.3

16.0

Sep 7/12

1.6

18.8

2.2

18.6

Sep 14/12

2.2

21.3

1.90

20.9

Sep 21/12

-0.1

21.2

-0.4

20.5

Sep 28/12

-1.0

19.9

-1.3

18.9

Oct 5/12

1.3

21.5

1.4

20.5

Oct 12/12

-2.1

18.9

-2.2

17.9

Oct 19/12

0.1

19.1

0.3

18.3

Oct 26/12

-1.8

17.0

-1.5

16.5

Nov 2/12

-0.1

16.9

0.2

16.7

Nov 9/12

-2.1

14.4

-2.4

13.8

Nov 16/12

-1.8

12.3

-1.4

12.2

Nov 23/12

3.3

16.1

3.6

16.3

Nov 30/12

0.1

16.2

0.5

16.8

Dec 7/12

1.0

17.4

0.1

17.0

Dec 14/12

-0.2

17.2

-0.3

16.6

Dec 21/12

0.4

17.7

1.2

18.0

Dec 28/12

-1.9

15.5

-1.9

15.7

Jan 4 2013

3.8

19.9

4.6

21.0

Jan 11/13

0.4

20.4

0.4

21.5

Jan 18/13

1.2

21.8

0.9

22.6

Jan 25/13

1.8

24.0

1.1

24.0

Feb 1/13

0.8

25.0

0.7

24.8

Feb 8/13

-0.1

24.9

0.3

25.2

Feb 15/13

-0.1

24.8

0.1

25.4

Feb 22/13

0.1

24.9

-0.3

25.0

Mar 1/13

0.6

25.7

0.2

25.3

Mar 8/13

2.2

28.5

2.2

28.0

Mar 15/13

0.8

29.5

0.6

28.8

Mar 22/13

0.0

29.5

-0.2

28.5

Mar 29/13

0.5

30.1

0.8

29.5

Apr 5/13

-0.1

30.0

-1.0

28.2

Apr 12/13

2.1

32.7

2.3

31.1

Apr 19/13

-2.1

29.8

-2.1

28.3

Aug 26/13

1.1

31.3

1.7

30.5

May 3/13

1.8

33.6

2.0

33.2

May 10/13

1.0

34.9

1.2

34.8

May 17/13

1.6

37.0

2.1

37.6

May 24/13

-0.3

36.6

-1.1

36.1

May 31/13

-1.2

34.9

-1.1

34.5

Jun 7/13

0.9

36.1

0.8

35.6

Jun 14/13

-1.2

34.5

-0.9

34.4

Jun 21/13

-1.8

32.1

-2.2

31.4

Jun 28/13

0.7

33.1

0.9

32.5

Jul 5/13

1.5

35.1

1.6

34.6

Jul 12/13

2.2

38.0

3.0

38.6

Jul 19/13

0.5

38.7

0.7

39.6

Jul 26/13

0.1

38.9

0.0

39.6

Aug 2/13

0.6

39.7

1.1

41.1

Aug 9/13

-1.5

37.7

-1.1

39.6

Aug 16/13

-2.2

34.6

-2.1

36.6

Aug 23/13

-0.5

34.0

0.5

37.2

Aug 30/13

-1.3

32.2

-1.8

34.7

Sep 6/13

0.8

33.2

1.4

36.6

Sep 13/13

3.0

37.2

2.0

39.3

Sep 20/13

0.5

37.9

1.3

41.1

Sep 27/13

-1.2

36.2

-1.1

39.6

Oct 4/13

-1.2

34.5

-0.1

39.5

Oct 11/13

1.1

36.0

0.8

40.5

Oct 18/13

1.1

37.4

2.4

43.9

Oct 25/13

1.1

39.0

0.9

45.2

Nov 1/13

0.3

39.4

0.1

45.3

Nov 8/13

0.9

40.7

0.5

46.1

Nov 15/13

1.3

42.5

1.6

48.4

Nov 22/13

0.6

43.4

0.4

48.9

Nov 29/13

0.1

43.6

0.1

49.0

Dec 6/13

-0.4

43.0

0.0

48.9

Dec 13/13

-1.7

40.6

-1.6

46.5

Dec 20/13

3.0

44.8

2.4

50.0

Dec 27/13

1.6

47.1

1.3

51.9

Jan 3, 2014

-0.1

47.0

-0.5

79.1

Jan 10/14

-0.2

46.7

0.6

52.0

Jan 17/14

0.1

46.9

-0.2

51.7

Jan 24/14

-3.5

41.7

-2.6

47.7

Jan 31/14

-1.1

40.1

-0.4

47.1

Feb 7/14

0.6

41.0

0.8

48.3

Feb 14/14

2.3

44.2

2.3

51.7

Feb 21/14

-0.3

43.7

-0.1

51.5

Feb 28/14

1.4

45.7

1.3

53.4

Mar 7/14

0.8

46.8

1.0

54.9

Mar 14/14

-2.4

43.4

-2.0

51.9

Mar 21/14

1.5

45.5

1.4

54.0

Mar 28/14

0.1

45.7

-0.5

53.3

Apr 4/14

0.5

46.5

0.4

53.9

Apr 11/14

-2.4

43.0

-2.6

49.8

Apr 17/14

2.4

46.4

2.7

53.9

Apr 25/14

-0.3

46.0

-0.1

53.7

May 2/14

0.9

47.4

1.0

55.2

May 9/14

0.4

48.0

-0.1

55.0

May 16, 14

-0.6

47.2

0.0

54.9

May 23, 14

0.7

48.2

1.2

56.8

May 30, 14

0.7

49.2

1.2

58.7

Jun 6, 14

1.2

51.0

1.3

60.8

Jun 13, 14

-0.9

49.7

-0.7

59.7

Jun 20, 14

1.0

51.2

1.4

61.9

Jun 27, 14

-0.6

50.4

-0.1

61.8

Jul 4, 14

1.3

52.3

1.2

63.8

Jul 11, 14

-0.7

51.2

-0.9

62.3

Jul 18, 14

0.9

52.6

0.5

63.2

Jul 25, 14

-0.8

51.4

0.0

63.2

Aug 1, 14

-2.8

47.2

-2.7

58.8

Aug 8, 14

0.4

47.7

0.3

59.4

Aug 15, 14

0.7

48.7

1.2

61.3

Aug 22, 14

2.0

51.7

1.7

64.1

Aug 29, 14

0.6

52.6

0.8

65.3

Sep 5, 14

0.2

52.9

0.2

65.6

Sep 12, 14

-0.9

51.6

-1.1

63.8

Sep 19, 14

1.7

54.2

1.3

65.9

Sep 26,14

-1.0

52.7

-1.4

63.6

Oct 3, 14

-0.6

51.8

-0.8

62.4

Oct 10, 14

-2.7

47.6

-3.1

57.3

Oct 17, 14

-1.0

46.2

-1.0

55.7

Oct 24, 14

2.6

50.0

4.1

62.1

Oct 31, 14

3.5

55.2

2.7

66.5

Nov 7, 14

1.1

56.8

0.7

67.6

Nov 14, 14

0.3

57.4

0.4

68.3

Nov 21,14

1.0

58.9

1.2

70.2

Nov 28, 14

0.1

59.1

0.2

70.6

Dec 5, 14

0.7

60.3

0.4

71.2

Dec 12, 14

-3.8

54.2

-3.5

65.2

Dec 19, 14

3.0

58.9

3.4

70.8

Dec 26, 2014

1.4

61.1

0.9

72.3

Jan 2, 2015

-1.2

59.2

-1.5

69.8

Jan 9, 15

-0.5

58.3

-0.7

68.7

Jan 16, 15

-1.3

56.3

-1.2

66.6

Jan 23, 15

0.9

57.7

1.6

69.3

Jan 30, 15

-2.9

53.2

-2.8

64.6

Feb 6, 15

3.8

59.1

3.0

69.6

Feb 13, 15

1.1

60.8

2.0

73.0

Feb 20, 15

0.7

61.9

0.6

74.1

Feb 27, 15

0.0

61.8

-0.3

73.6

Feb 6, 2015

-1.5

59.4

-1.6

70.9

Feb 13, 2015

-0.6

58.4

-0.9

69.4

Feb 20, 2015

2.1

61.8

2.7

73.9

Feb 27, 2015

-2.3

58.1

-2.2

70.0

Apr 03,2015

0.3

58.5

0.3

70.5

Apr 10,2015

1.7

61.2

1.7

73.4

Apr 17, 2015

-1.3

59.1

-1.0

71.7

Apr 24, 2015

1.4

61.4

1.8

74.7

May 1, 2015

-0.3

60.9

-0.4

73.9

May 8, 2015

0.9

62.3

0.4

74.6

May 15, 2015

0.4

63.1

0.3

75.1

May 22, 2015

-0.2

62.7

0.2

75.4

May 29, 2015

-1.2

60.7

-0.9

73.9

Jun 5, 2015

-0.9

59.3

-0.7

72.7

Jun 12, 2015

0.3

59.7

0.1

72.8

Jun 19, 2015

0.7

60.8

0.8

74.1

Jun 26, 2015

-0.4

60.2

-0.4

73.4

Jul 3, 2015

-1.2

58.2

-1.2

71.3

Jul 10, 2015

0.2

58.5

0.0

71.3

Jul 17, 2015

1.8

61.4

2.4

75.5

Jul 24, 2015

-2.9

56.8

-2.2

71.6

Jul 31, 2015

0.7

57.9

1.2

73.6

Aug 7, 2015

-1.8

55.0

-1.2

71.4

Aug 14, 2015

0.6

56.0

0.7

72.6

Aug 21, 2015

-5.8

46.9

-5.8

62.6

Aug 28, 2015

1.1

48.5

0.9

64.1

Sep 4, 2015

-3.2

43.7

-3.4

58.5

Sep 11, 2015

2.1

46.7

2.1

61.8

Sep 18, 2015

-0.3

46.2

-0.2

61.5

Sep 25, 2015

-0.4

45.6

-1.4

59.3

Oct 2, 2015

1.0

47.0

1.0

70.1

Oct 9, 2015

3.7

52.5

3.3

66.2

Oct 16, 2015

0.8

53.6

0.9

67.7

Oct 23, 2015

2.5

57.5

2.1

71.2

Oct 30, 2015

0.1

57.6

0.2

71.6

Nov 6, 2015

0.4

59.8

1.0

73.2

Nov 13, 2015

-3.7

53.9

-3.6

66.9

Nov 20, 2015

3.4

59.1

3.3

72.4

Nov 27, 2015

-0.1

58.8

0.0

72.4

Dec 4, 2015

0.3

59.3

0.1

72.6

Dec 11, 2015

-3.3

54.1

-3.8

66.0

Dec 18, 2015

-0.8

52.9

-0.3

65.5

Dec 23, 2015

2.5

56.6

2.8

70.0

Dec 31, 2015

-0.7

55.5

-0.8

68.6

Jan 08, 2016

-6.2

45.9

-6.0

58.6

Jan 15, 2016

-2.2

42.7

-2.2

55.1

Jan 22, 2016

0.7

43.6

1.4

57.3

Jan 29, 2016

2.3

47.0

1.7

60.1

Feb 05, 2016

-1.6

44.6

-3.1

55.1

Feb 12, 2016

-1.4

42.6

-0.8

53.9

Feb 19, 2016

2.6

46.3

2.8

58.2

Feb 26, 2016

1.5

48.5

1.6

60.7

Mar 04, 2016

2.2

51.8

2.7

65.0

Mar 11, 2016

1.2

53.6

1.1

66.8

Mar 18, 2016

2.3

57.1

1.4

69.1

Mar 25, 2016

-0.5

56.3

-0.7

68.0

Apr 01, 2016

1.6

58.8

1.8

71.0

Apr 08, 2016

-1.2

56.9

-1.2

68.9

Apr 15, 2016

1.8

59.7

1.6

71.7

Apr 22, 2016

0.6

60.7

0.5

72.6

Source:

http://professional.wsj.com/mdc/public/page/mdc_us_stocks.html?mod=mdc_topnav_2_3014

IX Conclusion. The departing theoretical framework of Bordo and Haubrich (2012DR) is the plucking model of Friedman (1964, 1988). Friedman (1988, 1) recalls, “I was led to the model in the course of investigating the direction of influence between money and income. Did the common cyclical fluctuation in money and income reflect primarily the influence of money on income or of income on money?” Friedman (1964, 1988) finds useful for this purpose to analyze the relation between expansions and contractions. Analyzing the business cycle in the United States between 1870 and 1961, Friedman (1964, 15) found that “a large contraction in output tends to be followed on the average by a large business expansion; a mild contraction, by a mild expansion.” The depth of the contraction opens up more room in the movement toward full employment (Friedman 1964, 17):

“Output is viewed as bumping along the ceiling of maximum feasible output except that every now and then it is plucked down by a cyclical contraction. Given institutional rigidities and prices, the contraction takes in considerable measure the form of a decline in output. Since there is no physical limit to the decline short of zero output, the size of the decline in output can vary widely. When subsequent recovery sets in, it tends to return output to the ceiling; it cannot go beyond, so there is an upper limit to output and the amplitude of the expansion tends to be correlated with the amplitude of the contraction.”

Kim and Nelson (1999) test the asymmetric plucking model of Friedman (1964, 1988) relative to a symmetric model using reference cycles of the NBER and find evidence supporting the Friedman model. Bordo and Haubrich (2012DR) analyze 27 cycles beginning in 1872, using various measures of financial crises while considering different regulatory and monetary regimes. The revealing conclusion of Bordo and Haubrich (2012DR, 2) is that:

“Our analysis of the data shows that steep expansions tend to follow deep contractions, though this depends heavily on when the recovery is measured. In contrast to much conventional wisdom, the stylized fact that deep contractions breed strong recoveries is particularly true when there is a financial crisis. In fact, on average, it is cycles without a financial crisis that show the weakest relation between contraction depth and recovery strength. For many configurations, the evidence for a robust bounce-back is stronger for cycles with financial crises than those without.”

The average rate of growth of real GDP in expansions after recessions with financial crises was 8 percent but only 6.9 percent on average for recessions without financial crises (Bordo 2012Sep27). Real GDP declined 12 percent in the Panic of 1907 and increased 13 percent in the recovery, consistent with the plucking model of Friedman (Bordo 2012Sep27). Bordo (2012Sep27) finds two probable explanations for the weak recovery during the current economic cycle: (1) collapse of United States housing; and (2) uncertainty originating in fiscal policy, regulation and structural changes. There are serious doubts if monetary policy is adequate to recover the economy under these conditions.

Lucas (2011May) estimates US economic growth in the long-term at 3 percent per year and about 2 percent per year in per capita terms. There are displacements from this trend caused by events such as wars and recessions but the economy grows much faster during the expansion, compensating for the contraction and maintaining trend growth over the entire cycle. Historical US GDP data exhibit remarkable growth: Lucas (2011May) estimates an increase of US real income per person by a factor of 12 in the period from 1870 to 2010. The explanation by Lucas (2011May) of this remarkable growth experience is that government provided stability and education while elements of “free-market capitalism” were an important driver of long-term growth and prosperity. Lucas sharpens this analysis by comparison with the long-term growth experience of G7 countries (US, UK, France, Germany, Canada, Italy and Japan) and Spain from 1870 to 2010. Countries benefitted from “common civilization” and “technology” to “catch up” with the early growth leaders of the US and UK, eventually growing at a faster rate. Significant part of this catch up occurred after World War II. Lucas (2011May) finds that the catch up stalled in the 1970s. The analysis of Lucas (2011May) is that the 20-40 percent gap that developed originated in differences in relative taxation and regulation that discouraged savings and work incentives in comparison with the US. A larger welfare and regulatory state, according to Lucas (2011May), could be the cause of the 20-40 percent gap. Cobet and Wilson (2002) provide estimates of output per hour and unit labor costs in national currency and US dollars for the US, Japan and Germany from 1950 to 2000 (see Pelaez and Pelaez, The Global Recession Risk (2007), 137-44). The average yearly rate of productivity change from 1950 to 2000 was 2.9 percent in the US, 6.3 percent for Japan and 4.7 percent for Germany while unit labor costs in USD increased at 2.6 percent in the US, 4.7 percent in Japan and 4.3 percent in Germany. From 1995 to 2000, output per hour increased at the average yearly rate of 4.6 percent in the US, 3.9 percent in Japan and 2.6 percent in Germany while unit labor costs in USD fell at minus 0.7 percent in the US, 4.3 percent in Japan and 7.5 percent in Germany. There was increase in productivity growth in Japan and France within the G7 in the second half of the 1990s but significantly lower than the acceleration of 1.3 percentage points per year in the US. The key indicator of growth of real income per capita, which is what a person earns after inflation, measures long-term economic growth and prosperity. A refined concept would include real disposable income per capita, which is what a person earns after inflation and taxes.

Table IB-1 provides the data required for broader comparison of long-term and cyclical performance of the United States economy. Revisions and enhancements of United States GDP and personal income accounts by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) provide important information on long-term growth and cyclical behavior. First, Long-term performance. Using annual data, US GDP grew at the average rate of 3.2 percent per year from 1929 to 2015 and at 3.2 percent per year from 1947 to 2015. Real disposable income grew at the average yearly rate of 3.2 percent from 1929 to 2015 and at 3.7 percent from 1947 to 1999. Real disposable income per capita grew at the average yearly rate of 2.0 percent from 1929 to 2015 and at 2.3 percent from 1947 to 1999. US economic growth was much faster during expansions, compensating contractions in maintaining trend growth for whole cycles. Using annual data, US real disposable income grew at the average yearly rate of 3.5 percent from 1980 to 1989 and real disposable income per capita at 2.6 percent. The US economy has lost its dynamism in the current cycle: real disposable income grew at the yearly average rate of 1.6 percent from 2006 to 2015 and real disposable income per capita at 0.8 percent. Real disposable income grew at the average rate of 1.6 percent from 2007 to 2015 and real disposable income per capita at 0.7 percent. Table IB-1 illustrates the contradiction of long-term growth with the proposition of secular stagnation (Hansen 1938, 1938, 1941 with early critique by Simons (1942). Secular stagnation would occur over long periods. Table IB-1 also provides the corresponding rates of population growth that is only marginally lower at 0.8 to 0.9 percent recently from 1.1 percent over the long-term. GDP growth fell abruptly from 2.6 percent on average from 2000 to 2006 to 1.3 percent from 2006 to 2015 and 1.2 percent from 2007 to 2015 and real disposable income growth fell from 2.9 percent on average from 2000 to 2006 to 1.6 percent from 2006 to 2015. The decline of growth of real per capita disposable income is even sharper from average 2.0 percent from 2000 to 2006 to 0.8 percent from 2006 to 2015 and 0.7 percent from 2007 to 2015 while population growth was 0.8 percent on average. Lazear and Spletzer (2012JHJul122) provide theory and measurements showing that cyclic factors explain currently depressed labor markets. This is also the case of the overall economy. Second, first four quarters of expansion. Growth in the first four quarters of expansion is critical in recovering loss of output and employment occurring during the contraction. In the first four quarters of expansion from IQ1983 to IVQ1983: GDP increased 7.8 percent, real disposable personal income 5.3 percent and real disposable income per capita 4.4 percent. In the first four quarters of expansion from IIIQ2009 to IIQ2010: GDP increased 2.7 percent, real disposable personal income 0.2 percent and real disposable income per capita decreased 0.7 percent. Third, first 26 quarters of expansion. In the expansion from IQ1983 to IIQ1989: GDP grew 35.0 percent at the annual equivalent rate of 4.7 percent; real disposable income grew 28.7 percent at the annual equivalent rate of 4.0 percent; and real disposable income per capita grew 21.5 percent at the annual equivalent rate of 3.0 percent. In the expansion from IIIQ2009 to IVQ2015: GDP grew 14.7 percent at the annual equivalent rate of 2.1 percent; real disposable income grew 12.1 percent at the annual equivalent rate of 1.8 percent; and real disposable personal income per capita grew 6.6 percent at the annual equivalent rate of 1.0 percent. Fourth, entire quarterly cycle. In the entire cycle combining contraction and expansion from IQ1980 to IIQ1989: GDP grew 34.8 percent at the annual equivalent rate of 3.1 percent; real disposable personal income grew 36.2 percent at the annual equivalent rate of 3.2 percent; and real disposable personal income per capita 24.7 percent at the annual equivalent rate of 2.3 percent. In the entire cycle combining contraction and expansion from IVQ2007 to IVQ2015: GDP grew 9.9 percent at the annual equivalent rate of 1.2 percent; real disposable personal income increased 14.0 percent at the annual equivalent rate of 1.6 percent; and real disposable personal income per capita grew 6.9 percent at the annual equivalent rate of 0.8 percent. The United States grew during its history at high rates of per capita income that made its economy the largest in the world. That dynamism is disappearing. Bordo (2012 Sep27) and Bordo and Haubrich (2012DR) provide strong evidence that recoveries have been faster after deeper recessions and recessions with financial crises, casting serious doubts on the conventional explanation of weak growth during the current expansion allegedly because of the depth of the contraction of 4.2 percent from IVQ2007 to IIQ2009 and the financial crisis. The proposition of secular stagnation should explain a long-term process of decay and not the actual abrupt collapse of the economy and labor markets currently.

Table IB-1, US, GDP, Real Disposable Personal Income, Real Disposable Income per Capita and Population Long-term and in 1983-88 and 2007-2014, %

Long-term Average ∆% per Year

GDP

Population

 

1929-2015

3.2

1.1

 

1947-2015

3.2

1.2

 

1947-1999

3.6

1.3

 

1980-1989

3.5

0.9

 

2000-2015

1.8

0.9

 

2000-2006

2.6

0.9

 

2006-2015

1.3

0.8

 

2007-2015

1.2

0.8

 

Long-term

Average ∆% per Year

Real Disposable Income

Real Disposable Income per Capita

Population

1929-2015

3.2

2.0

1.1

1947-1999

3.7

2.3

1.3

2000-2015

2.1

1.3

0.9

2000-2006

2.9

2.0

0.9

2006-2015

1.6

0.8

0.8

2007-2015

1.6

0.7

0.8

Whole Cycles

Average ∆% per Year

     

1980-1989

3.5

2.6

0.9

2006-2015

1.6

0.8

0.8

2007-2015

1.6

0.7

0.8

Comparison of Cycles

# Quarters

∆%

∆% Annual Equivalent

GDP

     

I83 to IV83

I83 to IQ87

I83 to II87

I83 to III87

I83 to IV87

I83 to I88

I83 to II88

I83 to III88

I83 to IV88

I83 to I89

I83 to II89

4

17

18

19

20

21

22

23

24

25

26

7.8

23.1

24.5

25.6

27.7

28.4

30.1

30.9

32.6

34.0

35.0

7.8

5.0

5.0

4.9

5.0

4.9

4.9

4.8

4.8

4.8

4.7

RDPI

     

I83 to IV83

I83 to I87

I83 to III87

I83 to IV87

I83 to I88

I83 to II88

I83 to III88

I83 to IV88

I83 to I89

IQ83 to II89

4

17

19

20

21

22

23

24

25

26

5.3

19.5

20.5

22.1

23.8

25.1

26.3

27.5

29.1

28.7

5.3

4.3

4.0

4.1

4.2

4.2

4.1

4.1

4.2

4.0

RDPI Per Capita

     

I83 to IV83

I83 to I87

I83 to III87

I83 to IV87

I83 to I88

I83 to II88

I83 to III88

I83 to IV88

I83 to I89

I83 to II89

4

17

19

20

21

22

23

24

25

26

4.4

15.1

15.5

16.7

18.2

19.2

20.0

20.9

22.1

21.5

4.4

3.4

3.1

3.1

3.2

3.2

3.2

3.2

3.2

3.0

Whole Cycle IQ1980 to IIQ1989

     

GDP

39

34.8

3.1

RDPI

39

36.2

3.2

RDPI per Capita

39

24.7

2.3

Population

39

9.2

0.9

GDP

     

III09 to II10

III09 to IV15

4

26

2.7

14.7

2.7

2.1

RDPI

     

III09 to II10

III09 to IV15

4

26

0.2

12.1

0.2

1.8

RDPI per Capita

     

III09 to II10

III09 to IV15

4

26

-0.7

6.6

-0.7

1.0

Population

     

III09 to II10

III09 to IV15

4

26

0.8

5.2

0.8

0.8

IVQ2007 to IVQ2015

32

   

GDP

32

9.9

1.2

RDPI

32

14.0

1.6

RDPI per Capita

32

6.9

0.8

Population

32

6.6

0.8

RDPI: Real Disposable Personal Income

Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm

There are seven basic facts illustrating the current economic disaster of the United States:

  • GDP maintained trend growth in the entire business cycle from IQ1980 to IIQI989, including contractions and expansions. GDP is well below trend in the entire business cycle from IVQ2007 to IVQ2015, including contractions and expansions
  • Per capita real disposable income exceeded trend growth in the 1980s but is substantially below trend in IVQ2015
  • Level of employed persons increased in the 1980s but declined/stagnated into IVQ2015
  • Level of full-time employed persons increased in the 1980s but declined/stagnated into IVQ2015
  • Level unemployed, unemployment rate and employed part-time for economic reasons fell in the recovery from the recessions in the 1980s but not substantially in the recovery since IVQ2009
  • Wealth of households and nonprofit organizations soared in the 1980s but stagnated in real terms into IVQ2015
  • Gross private domestic investment increased sharply from IQ1980 to IIQ1989 but gross private domestic investment stagnated and private fixed investment stagnated from IVQ2007 into IVQ2015

There is a critical issue of the United States economy will be able in the future to attain again the level of activity and prosperity of projected trend growth. Growth at trend during the entire business cycles built the largest economy in the world but there may be an adverse, permanent weakness in United States economic performance and prosperity. Table IB-2 provides data for analysis of these seven basic facts. The seven blocks of Table IB-2 are separated initially after individual discussion of each one followed by the full Table IB-2.

1. Trend Growth.

i. As shown in Table IB-2, actual GDP grew cumulatively 34.3 percent from IQ1980 to IIQ1989, which is relatively close to what trend growth would have been at 33.4 percent. Real GDP grew 34.8 percent from IVQ1979 to IIQ1989. Rapid growth at the average annual rate of 4.8 percent per quarter during the expansion from IQ1983 to IIQ1989 erased the loss of GDP of 4.7 percent during the contractions and maintained trend growth at 3.1 percent for GDP and 3.2 percent for real disposable personal income over the entire cycle.

ii. In contrast, cumulative growth from IVQ2007 to IVQ2015 was 9.9 percent while trend growth would have been 26.7 percent. GDP in IVQ2015 would be $18,994.6 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2524.0 billion than actual $16,470.6 billion. There are about two trillion dollars of GDP less than at trend, explaining the 24.5 million unemployed or underemployed equivalent to actual unemployment/underemployment of 14.6 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2016/04/proceeding-cautiously-in-monetary.html and earlier http://cmpassocregulationblog.blogspot.com/2016/03/twenty-five-million-unemployed-or.html). US GDP in IVQ2015 is 13.3 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,470.6 billion in IVQ2015 or 9.9 percent at the average annual equivalent rate of 1.2 percent. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 3.2 percent per year from Mar 1919 to Mar 2016. Growth at 3.2 percent per year would raise the NSA index of manufacturing output from 108.2316 in Dec 2007 to 140.3764 in Mar 2016. The actual index NSA in Mar 2016 is 103.2208, which is 26.5 percent below trend. Manufacturing output grew at average 2.1 percent between Dec 1986 and Dec 2015. Using trend growth of 2.1 percent per year, the index would increase to 128.4709 in Mar 2016. The output of manufacturing at 103.2208 in Mar 2016 is 19.7 percent below trend under this alternative calculation.

The civilian labor force consists of people who are available and willing to work and who have searched for employment recently. The labor force of the US grew 9.4 percent from 142.828 million in Jan 2001 to 156.255 million in Jul 2009. The civilian labor force is 1.7 percent higher at 158.854 million in Mar 2016 than in Jul 2009, all numbers not seasonally adjusted. Chart I-3 shows the flattening of the curve of expansion of the labor force and its decline in 2010 and 2011. The ratio of the labor force of 154.871 million in Jul 2007 to the noninstitutional population of 231.958 million in Jul 2007 was 66.8 percent while the ratio of the labor force of 158.854 million in Mar 2016 to the noninstitutional population of 252.768 million in Mar 2016 was 62.8 percent. The labor force of the US in Mar 2016 corresponding to 66.8 percent of participation in the population would be 168.849 million (0.668 x 252.768). The difference between the measured labor force in Mar 2016 of 158.854 million and the labor force in Mar 2016 with participation rate of 66.8 percent (as in Jul 2007) of 168.849 million is 9.995 million. The level of the labor force in the US has stagnated and is 9.995 million lower than what it would have been had the same participation rate been maintained. Millions of people have abandoned their search for employment because they believe there are no jobs available for them. The key issue is whether the decline in participation of the population in the labor force is the result of people giving up on finding another job.

Period IQ1980 to IIQ1989

 

GDP SAAR USD Billions

 

    IQ1980

6,524.9

    IIQ1989

8,766.1

∆% IQ1980 to

IIQ1989 (34.8 percent from IVQ1979 $6503.9 billion)

34.3

∆% Trend Growth IQ1980 to IIQ1989

33.4

Period IVQ2007 to IVQ2015

 

GDP SAAR USD Billions

 

    IVQ2007

14,991.8

    IVQ2015

16,470.6

∆% IVQ2007 to IVQ2015

9.9

∆% IVQ2007 to IVQ2015 Trend Growth

26.7

2. Real Disposable Income

i. In the entire business cycle from IQ1980 to IIQ1989, as shown in Table IB-2, per capita real disposable income, or what is left per person after inflation and taxes, grew cumulatively 24.6 percent, which is close to what would have been trend growth of 21.3 percent.

ii. In contrast, in the entire business cycle from IVQ2007 to IVQ2015, per capita real disposable income increased 6.9 percent while trend growth would have been 17.2 percent. Income available after inflation and taxes is about the same as before the contraction after 26 consecutive quarters of GDP growth at mediocre rates relative to those prevailing during historical cyclical expansions. Growth of personal income during the expansion has been tepid even with the new revisions. In IVQ2012, nominal disposable personal income grew at the SAAR of 13.3 percent and real disposable personal income at 10.9 percent (Table 2.1 http://bea.gov/iTable/index_nipa.cfm). The BEA explains as follows: “Personal income in November and December was boosted by accelerated and special dividend payments to persons and by accelerated bonus payments and other irregular pay in private wages and salaries in anticipation of changes in individual income tax rates. Personal income in December was also boosted by lump-sum social security benefit payments” (page 2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi1212.pdf pages 1-2 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0113.pdf). The Bureau of Economic Analysis explains as (http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0213.pdf 2-3): “The January estimate of employee contributions for government social insurance reflected the expiration of the “payroll tax holiday,” that increased the social security contribution rate for employees and self-employed workers by 2.0 percentage points, or $114.1 billion at an annual rate. For additional information, see FAQ on “How did the expiration of the payroll tax holiday affect personal income for January 2013?” at www.bea.gov. The January estimate of employee contributions for government social insurance also reflected an increase in the monthly premiums paid by participants in the supplementary medical insurance program, in the hospital insurance provisions of the Patient Protection and Affordable Care Act, and in the social security taxable wage base.”

The increase was provided in the “fiscal cliff” law H.R. 8 American Taxpayer Relief Act of 2012 (http://www.gpo.gov/fdsys/pkg/BILLS-112hr8eas/pdf/BILLS-112hr8eas.pdf).

In IQ2013, personal income fell at the SAAR of minus 11.4 percent; real personal income excluding current transfer receipts at minus 11.9 percent; and real disposable personal income at minus 15.9 percent (Table 14 at http://www.bea.gov/newsreleases/national/pi/2015/pdf/pi0615.pdf).The BEA explains as follows (page 3 at http://www.bea.gov/newsreleases/national/pi/2013/pdf/pi0313.pdf):

“The February and January changes in disposable personal income (DPI) mainly reflected the effect of special factors in January, such as the expiration of the “payroll tax holiday” and the acceleration of bonuses and personal dividends to November and to December in anticipation of changes in individual tax rates.”

In IIIQ2014, personal income grew at 4.5 percent, real personal income excluding current transfers at 2.8 percent, nominal disposable income at 3.9 percent and real disposable personal income at 2.7 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0216.pdf). In IVQ2014, personal income grew at 5.0 percent in nominal terms and at 6.0 percent in real terms excluding current transfers while nominal disposable income grew at 4.2 percent in nominal terms and at 4.7 percent in real terms (Table 6 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0216.pdf). In IQ2015, nominal personal income grew at 3.4 percent and at 4.3 percent in real terms excluding current transfer receipts while nominal disposable income grew at 1.9 percent and at 3.9 percent in real terms (Table 6 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0216.pdf). In IIQ2015, nominal personal income grew at 5.3 percent and at 3.3 percent in real terms excluding current transfer receipts while nominal disposable income grew at 4.9 percent and real disposable income grew at 2.6 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0216.pdf). In IIIQ2015, nominal personal income grew at 4.4 percent and 3.3 percent excluding transfer receipts while nominal disposable income grew at 4.5 percent and real disposable income grew at 3.2 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0216.pdf). In IVQ2015, nominal personal income grew at 3.1 percent and 2.7 percent excluding transfer receipts while nominal disposable income grew at 2.7 percent and real disposable income at 2.3 percent (Table 6 at http://www.bea.gov/newsreleases/national/pi/2016/pdf/pi0216.pdf).

Period IQ1980 to IIQ1989

 

Real Disposable Personal Income per Capita IQ1980 Chained 2009 USD

20,241

Real Disposable Personal Income per Capita IIQ1989 Chained 2009 USD

25,222

∆% IQ1980 to IIQ1989 (25.3 percent from IVQ1979 $20,230 billion)

24.6

∆% Trend Growth

21.3

Period IVQ2007 to IVQ2015

 

Real Disposable Personal Income per Capita IVQ2007 Chained 2009 USD

35,819

Real Disposable Personal Income per Capita IVQ2015 Chained 2009 USD

38,303

∆% IVQ2007 to IVQ2015

6.9

∆% Trend Growth

17.2

3. Number of Employed Persons

i. As shown in Table IB-2, the number of employed persons increased over the entire business cycle from 98.527 million not seasonally adjusted (NSA) in IQ1980 to 118.719 million NSA in IIQ1989 or by 120.5 percent.

ii. In contrast, during the entire business cycle the number employed stagnated from 146.334 million in IVQ2007 to 149.703 million in IVQ2015 or by 2.3 percent higher. There are 24.5 million persons unemployed or underemployed, which is 14.6 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2016/04/proceeding-cautiously-in-monetary.html and earlier http://cmpassocregulationblog.blogspot.com/2016/03/twenty-five-million-unemployed-or.html). The number employed in Mar 2016 was 150.738 million (NSA) or 3.423 million more people with jobs relative to the peak of 147.315 million in Jul 2007 while the civilian noninstitutional population of ages 16 years and over increased from 231.958 million in Jul 2007 to 252.768 million in Mar 2016 or by 20.810 million. The number employed increased 2.3 percent from Jul 2007 to Mar 2016 while the noninstitutional civilian population of ages of 16 years and over, or those available for work, increased 9.0 percent. The ratio of employment to population in Jul 2007 was 63.5 percent (147.315 million employment as percent of population of 231.958 million). The same ratio in Mar 2016 would result in 160.508 million jobs (0.635 multiplied by noninstitutional civilian population of 252.768 million). There are effectively 9.770 million fewer jobs in Mar 2016 than in Jul 2007, or 160.508 million minus 150.738 million. There is actually not sufficient job creation in merely absorbing new entrants in the labor force because of those dropping from job searches, worsening the stock of unemployed or underemployed in involuntary part-time jobs.

Period IQ1980 to IIQ1989

 

Employed Millions IQ1980 NSA End of Quarter

98.527

Employed Millions IIQ1989 NSA End of Quarter

118.719

∆% Employed IIQ1980 to IIQ1989

20.5

Period IVQ2007 to IVQ2015

 

Employed Millions IVQ2007 NSA End of Quarter

146.334

Employed Millions IVQ2015 NSA End of Quarter

149.703

∆% Employed IVQ2007 to IVQ2015

2.3

4. Number of Full-Time Employed Persons

i. As shown in Table IB-2, during the entire business cycle in the 1980s, including contractions and expansion, the number of employed full-time rose from 81.280 million NSA in IQ1980 to 99.539 million NSA in IIQ1989 or 22.5 percent.

ii. In contrast, during the entire current business cycle, including contraction and expansion, the number of persons employed full-time increased from 121.042 million in IVQ2007 to 122.013 million in IVQ2015 or 0.8 percent. The number with full-time jobs in Mar 2016 is 122.522 million, which is lower by 0.697 million relative to the peak of 123.219 million in Jul 2007. The magnitude of the stress in US labor markets is magnified by the increase in the civilian noninstitutional population of the United States from 231.958 million in Jul 2007 to 252.768 million in Mar 2016 or by 20.810 million (http://www.bls.gov/data/) while in the same period the number of full-time jobs decreased 0.697 million. The ratio of full-time jobs of 123.219 million in Jul 2007 to civilian noninstitutional population of 231.958 million was 53.1 percent. If that ratio had remained the same, there would be 134.220 million full-time jobs with population of 252.768 million in Mar 2016 (0.531 x 252.768) or 11.698 million fewer full-time jobs relative to actual 122.522 million. There appear to be around 10 million fewer full-time jobs in the US than before the global recession while population increased around 20 million. Mediocre GDP growth is the main culprit of the fractured US labor market.

Period IQ1980 to IIQ1989

 

Employed Full-time Millions IQ1980 NSA End of Quarter

81.280

Employed Full-time Millions IIQ1989 NSA End of Quarter

99.539

∆% Full-time Employed IQ1980 to IIQ1989

22.5

Period IVQ2007 to IVQ2015

 

Employed Full-time Millions IVQ2007 NSA End of Quarter

121.042

Employed Full-time Millions IVQ2015 NSA End of Quarter

122.013

∆% Full-time Employed IVQ2007 to IVQ2015

0.8

5. Unemployed, Unemployment Rate and Employed Part-time for Economic Reasons.

i. As shown in Table IB-2 and in the following block, in the cycle from IQ1980 to IIQ1989: (a) The rate of unemployment was lower at 5.5 percent in IIQ1989 relative to 6.6 percent in IQ1980. (b) The number unemployed decreased from 6.983 million in IQ1980 to 6.850 million in IIQ1989 or 1.9 percent. (c) The number employed part-time for economic reasons increased 49.4 percent from 3.624 million in IQ1980 to 5.413 million in IIQ1989.

ii. In contrast, in the economic cycle from IVQ2007 to IVQ2015: (a) The rate of unemployment did not change from 4.8 percent in IVQ2007 to 4.8 percent in IVQ2015. (b) The number unemployed increased 2.3 percent from 7.371 million in IVQ2007 to 7.542 million in IVQ2015. (c) The number employed part-time for economic reasons because they could not find any other job increased 30.1 percent from 4.750 million in IVQ2007 to 6.179 million in IVQ2015. (d) U6 Total Unemployed plus all marginally attached workers plus total employed part time for economic reasons as percent of all civilian labor force plus all marginally attached workers NSA increased from 8.7 percent in IVQ2007 to 9.8 percent in IVQ2015.

Period IQ1980 to IIQ1989

 

Unemployment Rate IQ1980 NSA End of Quarter

6.6

Unemployment Rate  IIQ1989 NSA End of Quarter

5.5

Unemployed IQ1980 Millions NSA End of Quarter

6.983

Unemployed IIQ1989 Millions NSA End of Quarter

6.850

∆%

-1.9

Employed Part-time Economic Reasons IQ1980 Millions NSA End of Quarter

3.624

Employed Part-time Economic Reasons Millions IIQ1989 NSA End of Quarter

5.413

∆%

49.4

Period IVQ2007 to IVQ2015

 

Unemployment Rate IVQ2007 NSA End of Quarter

4.8

Unemployment Rate IVQ2015 NSA End of Quarter

4.8

Unemployed IVQ2007 Millions NSA End of Quarter

7.371

Unemployed IVQ2015 Millions NSA End of Quarter

7.542

∆%

2.3

Employed Part-time Economic Reasons IVQ2007 Millions NSA End of Quarter

4.750

Employed Part-time Economic Reasons Millions IVQ2015 NSA End of Quarter

6,179

∆%

30.1

U6 Total Unemployed plus all marginally attached workers plus total employed part time for economic reasons as percent of all civilian labor force plus all marginally attached workers NSA

 

IVQ2007

8.7

IVQ2015

9.8

6. Wealth of Households and Nonprofit Organizations.

The comparison of net worth of households and nonprofit organizations in the entire economic cycle from IQ1980 (and from IVQ1979) to IIQ1989 and from IVQ2007 to IVQ2015 is in Table IIA-5. The data reveal the following facts for the cycles in the 1980s:

  • IVQ1979 to IIQ1989. Net worth increased 126.9 percent from IVQ1979 to IIQ1989, the all items CPI index increased 61.8 percent from 76.7 in Dec 1979 to 124.1 in Jun 1989 and real net worth increased 40.2 percent.
  • IQ1980 to IVQ1985. Net worth increased 65.4 percent, the all items CPI index increased 36.5 percent from 80.1 in Mar 1980 to 109.3 in Dec 1985 and real net worth increased 21.2 percent.
  • IVQ1979 to IVQ1985. Net worth increased 68.9 percent, the all items CPI index increased 42.5 percent from 76.7 in Dec 1979 to 109.3 in Dec 1985 and real net worth increased 18.5 percent.
  • IQ1980 to IQ1989. Net worth increased 118.0 percent, the all items CPI index increased 52.7 percent from 80.1 in Mar 1980 to 122.3 in Mar 1989 and real net worth increased 42.8 percent.
  • IQ1980 to IIQ1989. Net worth increased 122.2 percent, the all items CPI index increased 54.9 percent from 80.1 in Mar 1980 to 124.1 in Jun 1989 and real net worth increased 43.4 percent.

There is disastrous performance in the current economic cycle:

  • IVQ2007 to IVQ2015. Net worth increased 30.4 percent, the all items CPI increased 12.6 percent from 210.036 in Dec 2007 to 236.525 in Dec 2015 and real or inflation adjusted net worth increased 15.8 percent. Real estate assets adjusted for inflation fell 4.0 percent.

The explanation is partly in the sharp decline of wealth of households and nonprofit organizations and partly in the mediocre growth rates of the cyclical expansion beginning in IIIQ2009. Long-term economic performance in the United States consisted of trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy returned to trend growth after adverse events such as wars and recessions. The key characteristic of adversities such as recessions was much higher rates of growth in expansion periods that permitted the economy to recover output, income and employment losses that occurred during the contractions. Over the business cycle, the economy compensated the losses of contractions with higher growth in expansions to maintain trend growth of GDP of 3 percent and of GDP per capita of 2 percent. The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. US economic growth has been at only 2.1 percent on average in the cyclical expansion in the 26 quarters from IIIQ2009 to IVQ2015. Boskin (2010Sep) measures that the US economy grew at 6.2 percent in the first four quarters and 4.5 percent in the first 12 quarters after the trough in the second quarter of 1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first 12 quarters after the trough in the first quarter of 1983 (Professor Michael J. Boskin, Summer of Discontent, Wall Street Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are new calculations using the revision of US GDP and personal income data since 1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the third estimate of GDP for IVQ2015 (http://www.bea.gov/newsreleases/national/gdp/2016/pdf/gdp4q15_3rd.pdf). The average of 7.7 percent in the first four quarters of major cyclical expansions is in contrast with the rate of growth in the first four quarters of the expansion from IIIQ2009 to IIQ2010 of only 2.7 percent obtained by diving GDP of $14,745.9 billion in IIQ2010 by GDP of $14,355.6 billion in IIQ2009 {[$14,745.9/$14,355.6 -1]100 = 2.7%], or accumulating the quarter on quarter growth rates (http://cmpassocregulationblog.blogspot.com/2016/03/contraction-of-united-states-corporate.html and earlier http://cmpassocregulationblog.blogspot.com/2016/02/mediocre-cyclical-united-states.html). The expansion from IQ1983 to IVQ1985 was at the average annual growth rate of 5.9 percent, 5.4 percent from IQ1983 to IIIQ1986, 5.2 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983 to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to IVQ1988, 4.8 percent from IQ1983 to IQ1989 4.7 percent from IQ1983 to IIQ1989 and at 7.8 percent from IQ1983 to IVQ1983 (http://cmpassocregulationblog.blogspot.com/2016/03/contraction-of-united-states-corporate.html and earlier http://cmpassocregulationblog.blogspot.com/2016/02/mediocre-cyclical-united-states.html). The US maintained growth at 3.0 percent on average over entire cycles with expansions at higher rates compensating for contractions. Growth at trend in the entire cycle from IVQ2007 to IVQ2015 would have accumulated to 26.7 percent. GDP in IVQ2015 would be $18,994.6 billion (in constant dollars of 2009) if the US had grown at trend, which is higher by $2524.0 billion than actual $16,470.6 billion. There are about two trillion dollars of GDP less than at trend, explaining the 24.5 million unemployed or underemployed equivalent to actual unemployment/underemployment of 14.6 percent of the effective labor force (http://cmpassocregulationblog.blogspot.com/2016/04/proceeding-cautiously-in-monetary.html and earlier http://cmpassocregulationblog.blogspot.com/2016/03/twenty-five-million-unemployed-or.html). US GDP in IVQ2015 is 13.3 percent lower than at trend. US GDP grew from $14,991.8 billion in IVQ2007 in constant dollars to $16,470.6 billion in IVQ2015 or 9.9 percent at the average annual equivalent rate of 1.2 percent. Cochrane (2014Jul2) estimates US GDP at more than 10 percent below trend. The US missed the opportunity to grow at higher rates during the expansion and it is difficult to catch up because growth rates in the final periods of expansions tend to decline. The US missed the opportunity for recovery of output and employment always afforded in the first four quarters of expansion from recessions. Zero interest rates and quantitative easing were not required or present in successful cyclical expansions and in secular economic growth at 3.0 percent per year and 2.0 percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the US instead of allegations of secular stagnation. There is similar behavior in manufacturing. There is classic research on analyzing deviations of output from trend (see for example Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term trend is growth of manufacturing at average 3.2 percent per year from Mar 1919 to Mar 2016. Growth at 3.2 percent per year would raise the NSA index of manufacturing output from 108.2316 in Dec 2007 to 140.3764 in Mar 2016. The actual index NSA in Mar 2016 is 103.2208, which is 26.5 percent below trend. Manufacturing output grew at average 2.1 percent between Dec 1986 and Dec 2015. Using trend growth of 2.1 percent per year, the index would increase to 128.4709 in Mar 2016. The output of manufacturing at 103.2208 in Mar 2016 is 19.7 percent below trend under this alternative calculation.

Period IQ1980 to IIQ1988

 

Net Worth of Households and Nonprofit Organizations USD Millions

 

IVQ1979

IQ1980

9,047.8

9,238.6

IVQ1985

IIIQ1986

IVQ1986

IQ1987

IIQ1987

IIIQ1987

IVQ1987

IQ1988

IIQ1988

IIIQ1988

IVQ1988

IQ1989

IIQ1989

15,277.3

16,290.8

16,840.3

17,494.7

17,784.1

18,195.3

18,022.0

18,495.3

18,900.3

19,209.4

19,691.2

20,138.2

20,530.4

∆ USD Billions IVQ1985

IVQ1979 to IIQ1989

IQ1980-IVQ1985

IQ1980-IIIQ1986

IQ1980-IVQ1986

IQ1980-IQ1987

IQ1980-IIQ1987

IQ1980-IIIQ1987

IQ1980-IVQ1987

IQ1980-IQ1988

IQ1980-IIQ1988

IQ1980-IIIQ1988

IQ1980-IVQ1988

IQ1980-IQ1989

IQ1980-IIQ1989

+6,229.5  ∆%68.9 R∆%18.5

+11482.6  ∆%126.9 R∆%40.2

+6,038.7 ∆%65.4 R∆%21.2

+7,052.2 ∆%76.3 R∆%28.2

+7,601.8 ∆%82.3 R∆%32.1

+8,256.1 ∆%89.4 R∆%35.3

+8,545.5 ∆%92.5 R∆%35.9

+8,956.8 ∆%96.9 R∆%37.2

+8783.4 ∆%95.1 R∆%35.4

+9256.7 ∆%100.2 R∆%37.6

+9661.7 ∆%104.6 R∆%38.9

+9970.7 ∆%107.9 R∆%39.0

+10452.6 ∆%113.1 R∆%41.7

+10899.6 ∆%118.0 R∆%42.8

+11,291.8 ∆%122.2 R∆% 43.4

Period IVQ2007 to IVQ2015

 

Net Worth of Households and Nonprofit Organizations USD Millions

 

IVQ2007

66,536.0

IVQ2015

86,796.0

∆ USD Billions

+20,260 ∆%30.4 R∆%15.8

Net Worth = Assets – Liabilities. R∆% real percentage change or adjusted for CPI percentage change.

Source: Board of Governors of the Federal Reserve System. 2016. Flow of funds, balance sheets and integrated macroeconomic accounts: fourth quarter 2015. Washington, DC, Federal Reserve System, Mar 10. http://www.federalreserve.gov/releases/z1/.

7. Gross Private Domestic Investment.

i. The comparison of gross private domestic investment in the entire economic cycles from IQ1980 to IIQ1989 and from IVQ2007 to IVQ2015 is in the following block and in Table IB-2. Gross private domestic investment increased from $951.6 billion in IQ1980 to $1,278.3 billion in IIQ1989 or by 34.3 percent.

ii In the current cycle, gross private domestic investment increased from $2,605.2 billion in IVQ2007 to $2,852.7 billion in IVQ2015, or 9.5 percent. Private fixed investment edged from $2,586.3 billion in IVQ2007 to $2,763.2 billion in IVQ2015, or increase by 6.8 percent.

Period IQ1980-IQ1989

 

Gross Private Domestic Investment USD 2009 Billions

 

IQ1980

951.6

IIQ1989

1278.3

∆%

34.3

Period IVQ2007 to IVQ2015

 

Gross Private Domestic Investment USD Billions

 

IVQ2007

2,605.2

IVQ2015

2,852.7

∆%

9.5

Private Fixed Investment USD 2009 Billions

 

IVQ2007

2,586.3

IVQ2015

2,763.2

∆%

6.8

Table IB-2, US, GDP and Real Disposable Personal Income per Capita Actual and Trend Growth and Employment, 1980-1989 and 2007-2015, SAAR USD Billions, Millions of Persons and ∆%

   

Period IQ1980 to IIQ1989

 

GDP SAAR USD Billions

 

    IQ1980

6,524.9

    IIQ1989

8,766.1

∆% IQ1980 to

IIQ1989 (34.8 percent from IVQ1979 $6503.9 billion)

34.3

∆% Trend Growth IQ1980 to IIQ1989

33.4

Real Disposable Personal Income per Capita IQ1980 Chained 2009 USD

20,241

Real Disposable Personal Income per Capita IIQ1989 Chained 2009 USD

25,222

∆% IQ1980 to IIQ1989 (25.3 percent from IVQ1979 $20,230 billion)

24.6

∆% Trend Growth

21.3

Employed Millions IQ1980 NSA End of Quarter

98.527

Employed Millions IIQ1989 NSA End of Quarter

118.719

∆% Employed IQ1980 to IIQ1989

20.5

Employed Full-time Millions IQ1980 NSA End of Quarter

81.280

Employed Full-time Millions IIQ1989 NSA End of Quarter

99.539

∆% Full-time Employed IIQ1980 to IIQ1989

22.5

Unemployment Rate IQ1980 NSA End of Quarter

6.6

Unemployment Rate  IIQ1989 NSA End of Quarter

5.5

Unemployed IQ1980 Millions NSA End of Quarter

6.983

Unemployed IIQ1989 Millions NSA End of Quarter

6.850

∆%

-1.9

Employed Part-time Economic Reasons IQ1980 Millions NSA End of Quarter

3.624

Employed Part-time Economic Reasons Millions IIQ1989 NSA End of Quarter

5.413

∆%

49.4

Net Worth of Households and Nonprofit Organizations USD Billions

 

IVQ1979

9,047.8

IIQ1989

20,530.4

∆ USD Billions

+11,482.6

∆% CPI Adjusted

40.2

Gross Private Domestic Investment USD 2009 Billions

 

IQ1980

951.6

IIQ1989

1278.3

∆%

34.3

Period IVQ2007 to IVQ2015

 

GDP SAAR USD Billions

 

    IVQ2007

14,991.8

    IVQ2015

16,470.6

∆% IVQ2007 to IVQ2015

9.9

∆% IVQ2007 to IVQ2015 Trend Growth

26.7

Real Disposable Personal Income per Capita IVQ2007 Chained 2009 USD

35,819

Real Disposable Personal Income per Capita IVQ2015 Chained 2009 USD

38,303

∆% IVQ2007 to IVQ2015

6.9

∆% Trend Growth

17.2

Employed Millions IVQ2007 NSA End of Quarter

146.334

Employed Millions IVQ2015 NSA End of Quarter

149.703

∆% Employed IVQ2007 to IVQ2015

2.3

Employed Full-time Millions IVQ2007 NSA End of Quarter

121.042

Employed Full-time Millions IVQ2015 NSA End of Quarter

122.013

∆% Full-time Employed IVQ2007 to IVQ2015

0.8

Unemployment Rate IVQ2007 NSA End of Quarter

4.8

Unemployment Rate IVQ2015 NSA End of Quarter

4.8

Unemployed IVQ2007 Millions NSA End of Quarter

7.371

Unemployed IVQ2015 Millions NSA End of Quarter

7.542

∆%

2.3

Employed Part-time Economic Reasons IVQ2007 Millions NSA End of Quarter

4.750

Employed Part-time Economic Reasons Millions IVQ2015 NSA End of Quarter

6.179

∆%

30.1

U6 Total Unemployed plus all marginally attached workers plus total employed part time for economic reasons as percent of all civilian labor force plus all marginally attached workers NSA

 

IVQ2007

8.7

IVQ2015

9.8

Net Worth of Households and Nonprofit Organizations USD Billions

 

IVQ2007

66,536.0

IVQ2015

86,796.0

∆ USD Billions

+20,260 ∆%30.4 R∆%15.8

Gross Private Domestic Investment USD Billions

 

IVQ2007

2,605.2

IVQ2015

2,852.7

∆%

9.5

Private Fixed Investment USD 2009 Billions

 

IVQ2007

2,586.3

IVQ2015

2,763.2

∆%

6.8

Note: GDP trend growth used is 3.0 percent per year and GDP per capita is 2.0 percent per year as estimated by Lucas (2011May) on data from 1870 to 2010.

Source: US Bureau of Economic Analysis http://www.bea.gov/iTable/index_nipa.cfm US Bureau of Labor Statistics http://www.bls.gov/data/. Board of Governors of the Federal Reserve System. 2016. Flow of funds, balance sheets and integrated macroeconomic accounts: fourth quarter 2015. Washington, DC, Federal Reserve System, Mar 10. http://www.federalreserve.gov/releases/z1/.

  The Congressional Budget Office (CBO 2014BEOFeb4) estimates potential GDP, potential labor force and potential labor productivity provided in Table IB-3. The CBO estimates average rate of growth of potential GDP from 1950 to 2015 at 3.2 percent per year. The projected path is significantly lower at 2.0 percent per year from 2016 to 2026. The legacy of the economic cycle expansion from IIIQ2009 to IVQ2015 at 2.1 percent on average is in contrast with 4.7 percent on average in the expansion from IQ1983 to IIQ1989 (http://cmpassocregulationblog.blogspot.com/2016/03/contraction-of-united-states-corporate.html). Subpar economic growth may perpetuate unemployment and underemployment estimated at 24.5 million or 14.6 percent of the effective labor force in Mar 2016 (http://cmpassocregulationblog.blogspot.com/2016/04/proceeding-cautiously-in-monetary.html and earlier http://cmpassocregulationblog.blogspot.com/2016/03/twenty-five-million-unemployed-or.html) with much lower hiring than in the period before the current cycle (http://cmpassocregulationblog.blogspot.com/2016/04/proceeding-cautiously-in-reducing.html and earlier http://cmpassocregulationblog.blogspot.com/2016/03/contraction-of-united-states-corporate.html).

Table IB-3, US, Congressional Budget Office History and Projections of Potential GDP of US Overall Economy, ∆%

 

Potential GDP

Potential Labor Force

Potential Labor Productivity*

Average Annual ∆%

     

1950-1973

4.0

1.6

2.4

1974-1981

3.2

2.5

0.7

1982-1990

3.2

1.6

1.5

1991-2001

3.3

1.3

2.0

2002-2007

2.7

1.1

1.6

2008-2015

1.4

0.5

0.9

Total 1950-2015

3.2

1.5

1.7

Projected Average Annual ∆%

     

2016-2020

1.8

0.4

1.4

2021-2026

2.1

0.6

1.5

2016-2026

2.0

0.5

1.4

*Ratio of potential GDP to potential labor force

Source: CBO (2014BEOFeb4), CBO, Key assumptions in projecting potential GDP—February 2014 baseline. Washington, DC, Congressional Budget Office, Feb 4, 2014. CBO, The budget and economic outlook: 2015 to 2025. Washington, DC, Congressional Budget Office, Jan 26, 2015. https://www.cbo.gov/about/products/budget_economic_data#3

Chart IB-1A of the Congressional Budget Office provides historical and projected potential and actual US GDP. The gap between actual and potential output closes by 2017. Potential output expands at a lower rate than historically. Growth is even weaker relative to trend.

clip_image002

Chart IB-1A, Congressional Budget Office, Estimate of Potential GDP and Gap

Source: Congressional Budget Office

https://www.cbo.gov/publication/49890

Chart IB-1A of the Congressional Budget Office provides historical and projected potential and actual US GDP. The gap between actual and potential output closes by 2017. Potential output expands at a lower rate than historically. Growth is even weaker relative to trend.

clip_image003

Chart IB-1A, Congressional Budget Office, Estimate of Potential GDP and Gap

Source: Congressional Budget Office

https://www.cbo.gov/publication/49890

Chart IB-1 of the Congressional Budget Office (CBO 2013BEOFeb5) provides actual and potential GDP of the United States from 2000 to 2011 and projected to 2024. Lucas (2011May) estimates trend of United States real GDP of 3.0 percent from 1870 to 2010 and 2.2 percent for per capita GDP. The United States successfully returned to trend growth of GDP by higher rates of growth during cyclical expansion as analyzed by Bordo (2012Sep27, 2012Oct21) and Bordo and Haubrich (2012DR). Growth in expansions following deeper contractions and financial crises was much higher in agreement with the plucking model of Friedman (1964, 1988). The unusual weakness of growth at 2.1 percent on average from IIIQ2009 to IVQ2015 during the current economic expansion in contrast with 4.7 percent on average in the cyclical expansion from IQ1983 to IIQ1989 (http://cmpassocregulationblog.blogspot.com/2016/03/contraction-of-united-states-corporate.html) cannot be explained by the contraction of 4.2 percent of GDP from IVQ2007 to IIQ2009 and the financial crisis. Weakness of growth in the expansion is perpetuating unemployment and underemployment of 24.5 million or 14.6 percent of the labor force as estimated for Mar 2016 (http://cmpassocregulationblog.blogspot.com/2016/04/proceeding-cautiously-in-monetary.html and earlier http://cmpassocregulationblog.blogspot.com/2016/03/twenty-five-million-unemployed-or.html). There is no exit from unemployment/underemployment and stagnating real wages because of the collapse of hiring (http://cmpassocregulationblog.blogspot.com/2016/04/proceeding-cautiously-in-reducing.html and earlier http://cmpassocregulationblog.blogspot.com/2016/03/contraction-of-united-states-corporate.html). The US economy and labor markets collapsed without recovery. Abrupt collapse of economic conditions can be explained only with cyclic factors (Lazear and Spletzer 2012Jul22) and not by secular stagnation (Hansen 1938, 1939, 1941 with early dissent by Simons 1942).

clip_image004

Chart IB-1, US, Congressional Budget Office, Actual and Projections of Potential GDP, 2000-2024, Trillions of Dollars

Source: Congressional Budget Office, CBO (2013BEOFeb5). The last year in common in both projections is 2017. The revision lowers potential output in 2017 by 7.3 percent relative to the projection in 2007.

Chart IB-2 provides differences in the projections of potential output by the CBO in 2007 and more recently on Feb 4, 2014, which the CBO explains in CBO (2014Feb28).

clip_image005

Chart IB-2, Congressional Budget Office, Revisions of Potential GDP

Source: Congressional Budget Office, 2014Feb 28. Revisions to CBO’s Projection of Potential Output since 2007. Washington, DC, CBO, Feb 28, 2014.

Chart IB-3 provides actual and projected potential GDP from 2000 to 2024. The gap between actual and potential GDP disappears at the end of 2017 (CBO2014Feb4). GDP increases in the projection at 2.5 percent per year.

clip_image006

Chart IB-3, Congressional Budget Office, GDP and Potential GDP

Source: CBO (2013BEOFeb5), CBO, Key assumptions in projecting potential GDP—February 2014 baseline. Washington, DC, Congressional Budget Office, Feb 4, 2014.

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