Naked Economics: Undressing the Dismal Science pdfdrive com

Total national happiness. You decide. We don’t have a number for that one yet.
An autoworker in Detroit who has spent his career getting laid off for months at
a time and then called back to work is going to ask a simple question: Are we
getting any better at all of this? Yes, we are. The United States has gone through
eleven recessions since World War II.
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None, including the 2008 financial
crisis, was of the same order of magnitude as the Great Depression. From 1929
to 1933, real GDP fell by 30 percent while unemployment climbed from 3
percent to 25 percent. In contrast, GDP fell by 5 percent during the financial
crisis and unemployment peaked at 10 percent. Prior to the Great Depression, the
United States regularly experienced deep recessions, including financial panics,
far worse than anything in your lifetime or mine.
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We haven’t made the
economic bumps go away, but they are smaller bumps.
One can also argue that what we’ve learned from past economic downturns,
and the Great Depression in particular, has helped with policies this time around.
Ben Bernanke, Fed chairman during the financial crisis (and a former Princeton
professor), is a scholar of the Great Depression. So is Christina Romer, who
served as President Obama’s chair of the Council of Economic Advisers (and
was a Berkeley professor before that). I can promise you that economists will
still be arguing fifty years from now about what should or shouldn’t have been
done in response to the recession and subsequent financial crisis. However, even
the toughest critics should concede that officials at the end of the Bush
administration and the beginning of the Obama administration avoided the worst
mistakes of the 1930s, when the Federal Reserve raised interest rates in the face
of the Great Depression and Congress raised taxes—thrusting both monetary and
fiscal policy in the wrong direction.
There is something to be said for not doing exactly the wrong thing. I suspect
history will judge that policymakers did even better than that.

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history will judge that policymakers did even better than that.
*
To derive the Gini index, the personal incomes in a country are arranged in ascending order. A line, the
Lorenz curve, plots the cumulative share of personal income against the cumulative share of population.
Total equality would be a 45-degree line. The Gini coefficient is the ratio of the area between the diagonal
and the Lorenz curve to the total area under the diagonal.
†
President Donald Trump often overstates the U.S. trade deficit by omitting trade in services. The U.S.
typically runs a deficit in goods and a surplus in services. Thus, leaving out services makes the overall trade
deficit appear bigger than it really is.

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CHAPTER 10
The Federal Reserve: