The Golden Age of Economics

      Just read an interesting post over at Marcus Nunes' The Faint of Heart, that compared two economic "golden ages" the 60s and the 90s. Both were times of tremendous growth and economic expansion.

      http://thefaintofheart.wordpress.com/2012/02/22/the-60s-x-the-90s-golden-age-x-great-moderation-who-wins-the-economic-gold-i-could-also-call-the-dispute-obsession-w/

      If you haven't read his post I certainly recommend it. He is a Market Monetarist but while I certainly find Sumner and Lars Christensen worth reading-much as I give Sumner crap-Nunes writes an excellent blog. What I like about it is that he, kind of like me over here at Diary of a Republican Hater, makes a real effort to post early and often. You won't run out of things to read.

     In this particular post he compared the 60s and the 90s.

     "There are many similarities between the 1960s and the 1990s. They both started with a recession – the 1960/61 recession and the 1990/91 recession. Both were relatively mild and both recorded a drop of 1% in Real GDP at the trough."

      "President Kennedy was elected on November 1960 and immediately surrounded himself with a veritable “who´s who” of the intellectuals of the time as advisors and counselors. That was also true for the “economic team”, in particular the group that came to staff the Council of Economic Advisors (CEA)."

       Indeed, the 60s with the Kennedy and Johnson Administrations was not just a economic golden age, but a golden age of the economist. The economist starting with the Kennedy Administration occupied a very high place on the food chain.

       "This was a sea change from the Eisenhower presidency, where economists, with the exception of Arthur Burns, didn´t have much sway.  Walter Heller, Chairman of the first Kennedy Council (1961-64) even dubbed the period “The Age of the Economist”. In his 1966 book, New Dimensions of Political Economy, he recounts the following:

        "President Johnson underscored his esteem of economists at the swearing-in of James Duesenberry as new CEA member in early 1966. He predicted that the new Council member would “write a record here, as his colleagues… have written, that will excite the admiration of not only all their fellow Americans, but will excite the admiration of leaders in other governments throughout the world who frequently comment to me about the wisdom, the foresight, the stability of the United States of America and its policies”.

       Nunes leaves a link from a few Economic Reports to the President (ERP). It's a pleasure to remember that age and heroes of mine like Arthur Okun. Reading the ERP of 1969 you see how seriously the government took it's full employment mandate in the 60s:

       "The decline in the over-all unemployment rate since early 1961 has been accompanied by equally impressive gains by specific categories of the labor force, as shown in Chart 6. In particular, the unemployment rate for white adult males had fallen to 1.8 percent by the fourth quarter of 1968, a level last achieved in 1953. For nonwhite adult males the decline in unemployment has been especially dramatic—from an intolerable 11.6 percent rate in early 1961 to 3.9 percent in late 1968. This represents a significant narrowing of the differential between white and nonwhite unemployment rates for men, from 6.4 percentage points at the beginning of the period to about 2 percentage points by the fourth quarter of 1968. On the other hand, there has been little progress in reducing the unemployment rates of teenagers, especially nonwhites."

       "In the 1960s inflation was low and stable in the first half of the decade and quickly climbed during the second half. In the 1990s it trended down continuously. Observe in the RGDP growth charts that growth was much more stable in the 1990s and ended the decade higher and even more stable while it came down in the second half of the 1960s, when inflation began to show it´s “ugly” face"

      "When did inflation “rear its ugly head” in the 1960s? Soon after spending “took off”. In the 1990s spending evolved along a constant growth trend. Unemployment AND inflation came down."

      Marcus kind of sees both the 60s and 90s gripped by a certain kind of "obsession"-the 60s with unemployment, the 90s with:

      "obsession in the 1990s was with a constant level growth trend for spending. The “obsession” with inflation came “on board” with Bernanke and just as the unemployment “obsession” gave rise to the “Great Inflation”, the inflation “obsession” opened the door to (the final name ruling is still pending):

    

1. The Great Recession
2. The Lesser Depression
3. The Second Great Contraction

       I'm not sure that the 90s can be dignified with a "constant level trend for spending" obsession. I think the inflation obsession was always present during the Great Moderation.

      I disagree with Marcus claiming that the 90s was better than the 60s hands down.
     

      In the comments section I made this point to Marcus:

       "the 90s ended no more seamlessly than the 60s-but to do see this you have to look at what happened 2000-20002. The 2001 recession was particularly bad."

       "After the 2001 recession the recovery was very weak. You can even note that the S&P index in inflation adjusted terms never got back to its peak in the late 90s."

      "I’d say that both golden ages ended with a thud."

       I think full employment has been given short thrift for too long even if it was "overdone" in the 60s-I'm not sure I agree with that in any case.

       Now you have people in Congress-the Brady Bill- demading that the Fed forget full employment altogether-yesterday Bulliard was on CNBC and pleased them a lot by saying he'd have no problem with it as the only thing they can effect is inflation anyway-somehow low inflation will always take care of employment.

      http://www.themoneyillusion.com/?p=13271