Tuesday, November 27, 2007

The rest of the day 

...just got away from me. I expect a quote in the local paper on this latest report from the US Council of Mayors on the effect of the mortgage crisis on local economies. I'll add two quick points unlikely to make the paper (one I didn't even mention because it had no context in the reporter's questions). First, I think the report occasionally confuses stock measures of wealth loss with flow measures of income loss, when they get to the city level. The national estimate -- $166 billion of lost output (about 1.2% of GDP); 524,000 fewer jobs grown; $1.2 trillion in lost home equity -- is a little higher than I might have spitballed, but not outrageous. Second, Global Insights did the estimates, and other forecasts of theirs that I've read would suggest they are towards the lower end of the consensus forecasts. I visited some of the issues in this post from last month. If the Fed is forecasting 1.8-2.5% growth for 2008, you can put GI at the low end of that. Their national recession probability is at 35%.

Also finished grading and reviewing exams. There was a question on the frictional unemployment that results from a decline in the price of oil. More than half the students seemed to conclude that a decline in oil prices was therefore bad. Mr. Bastiat made a call to help explain the make-work bias. Then a pile of kid-taxiing.

Which brings me to the best thing I read tonight. Not that the NBER is going or not going to have its Business Cycle Dating Committee meet, but the history lesson Justin Fox provides.
The Business-Cycle Dating Committee is one of my favorite weird little American institutions. It was set up by Harvard economist Marty Feldstein after he took over as president of the NBER in 1977. Before that, veteran NBER staffer Geoffrey H. Moore (he'd been there since 1939) had more or less singlehandedly determined what was a recession and what was not. Feldstein decided such work was better done by a committee.

...Its members do not follow the short-hand rule that a recession is two consecutive quarters of negative growth in real GDP, a misdefinition that, I learned today (thanks, Barbara!), was probably the dastardly doing of Arthur Okun, chairman of LBJ's Council of Economic Advisers. That's partly because, given the constant revision and re-revision of GDP, you'd have to wait about five years to conclusively declare a recession. But it's also because economic downturns don't necessarily start and end on a quarterly basis.
The NBER explains its procedures here.