Webpages useful for teachers of intermediate macroeconomics:

The Course of the Recession and What It Tells Us About the New Economy


Read the newspaper, listen to the TV, and it's hard to avoid the impression that the 'New Economy' of the nineties was grossly oversold. The crash of the NASDAQ and the dot-com bankruptcies demonstrated that a lot of late-nineties investment was socially-wasted fluff. The recession of 2001 showed that U.S. growth was not bound for the stratosphere.

But if you hang out with the professional forecasters and builders of economic models, you hear a very different story. They are impressed by how small the recession of 2001 has been in terms of lost output, how rapid productivity growth has been throughout the recession, and they are expecting the next decade to look a lot more like the fast-growth second half of the nineties than like earlier periods of slow productivity and real wage growth. Consider the fourth quarter of 2001, in which hours worked in the U.S. economy fell at an annual rate of 3.3 percent. In a normal recession--a recession like those we have typically had since 1973--you would have expected such a steep fall in hours to be accompanied by an even steeper fall in production, for productivity typically falls when unemployment rises sharply and hours worked crash. But in the fourth quarter of 2001, production did not fall. Instead, it rose at an annual rate of 1.7 percent.

If you are a politician in office, like Treasury Secretary O'Neill, this growth in fourth-quarter production lets you score political points by saying that there was never a recession at all (never mind that the U.S. economy has shed two million net jobs over the past year). But if you are an economist interested in forecasting more than the next three month's statistics, it suggests something much more interesting--that the process of automation and investment in information technology that fueled such rapid real wage and production growth in the late nineties is still going on under the surface even in the depth of the recession, even when businesses are under no immediate pressure to boost their capacity. This suggests that the underlying computer-driven productivity growth trend is rapid indeed.

Previous Handouts

2002-04-10: Productivity Growth
2002-03-27: America's Rebound from Recession
2002-03-20: World Economic Forecasts
2002-03-13: Population Growth (Chapter 5: Growth Facts)
2002-03-06: Capacity Utilization (Chapter 2: Economic Data)
2002-02-27: U.S. Household Incomes (Chapter 2: Economic Data; Chapter 5: Growth Facts)
2002-02-20: Unemployment in the 1990s (Chapter 2: Economic Data)
2002-02-06: U.S. Monetary Policy (Chapter 13: Stabilization Policy)
2002-01-28: GDP in 2000 and 2001 (Chapter 13: Stabilization Policy. Chapter 2: Economic Data)
2002-01-21: The Course of the U.S. Recession (Chapter 13: Stabilization Policy)
2002-01-07: Argentina's Crisis (Chapter 15: Exchange Rate Regimes)
2001-12-10: The U.S. Recession (Chapter 2: Principal Macroeconomic Variables)
2001-12-03: The Overvalued Euro (Chapter 3: Exchange Rates; Chapter 15: Exchange Rate Regimes)
2001-11-26: Net Exports, the Exchange Rate, and an IS-Led Boom (Chapter 11: Balance of Payments; Chapter 15: Exchange Rate Regimes)
2001-11-19: The European Central Bank and Its Monetary Policy (Chapter 13: Stabilization Policy)
2001-11-12: Central Banks Worldwide Cut Interest Rates Again (Chapter 13: Stabilization Policy)
2001-11-05: Effects of the Collapse in Spending on Durables (Chapter 9: Income-Expenditure and the Multiplier.)
2001-10-28: What Kind of Stimulus (Chapter 13: Stabilization Policy. Chapter 9: Income-Expenditure and the Multiplier.)
2001-10-21: Federal Reserve Reaction to the Terror Attack on the World Trade Center (Chapter 13: Stabilization Policy. Chapter 10: The IS Curve.)
2001-10-14: Why a Stimulus Package Might Be Desireable (Chapter 13: Stabilization Policy. Chapter 10: The IS Curve.)

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