Thursday, June 16, 2011

A Garden Variety Recession?

Mark Thoma features the “debate” between Brad DeLong and Jim Grant. Brad has a nice summary of this debate. Mark Sadowski in a comment over at Mark’s place alerts us to an interview with Mr. Grant by none other than Lawrence Kudlow:

Kudlow: Look, you’ve got some pretty convincing stuff [in Grant’s Observer]. This is the most stimulus we have ever seen. I think what you’re saying is the Fed has poured in 18 percent of GDP. Fiscally, spending and taxing 12 percent of GDP. Those are world records. But this isn’t even the worst downturn.

Grant: By the numbers, this is a garden-variety recession. So far, statistically, on the GDP numbers, it is ordinary. What is extraordinary of course is Wall Street’s self-inflicted wounds in credit. However, what is truly momentous is the government’s response. Nothing like it. So there have been 11 recessions/depressions since 1929. On average, the sum of the fiscal and the monetary response as we index them is like 2.9 percent of GDP.

A garden-variety recession this one is not. By Kudlow thinks Grant is “smart”. Kudlow is overestimating the amount of fiscal stimulus with his 12% claim. I suspect he is counting the decline in tax revenues as a result of the recession as part of the fiscal stimulus. But how does one take stock numbers represented exchanges of assets (monetary policy) and call that additions to expenditure flows (18% of GDP)? Most economists would argue that we have had too little stimulus for such an enormous recession but these two clowns think the stimulus is a “world record” while the recession is very modest.


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