Comparing recoveries

Not a graph one can repeat too often: Investment in current US recovery has been exceptionally slow h/t @JWMason1 https://t.co/X8FLHktfxk pic.twitter.com/Rt2azYbAYd

— Adam Tooze (@adam_tooze) August 3, 2017

One of the points I try to stress on this blog is that models can be used to frame data. The tweet above shows one particular framing of investment data that shows the post-Great Recession recovery has been lackluster compared to other recoveries.

I used the same framing for nominal GDP data (which is roughly proportional to investment):

Included alongside the data is the dynamic equilibrium model of GDP (that I previously used in two discussions of data framing) shown with dotted lines. They follow the data fairly closely. In fact using this framing, the issue with the present recovery is that it's normalized to the housing bubble peak, but is otherwise right on track:

However, the dynamic equilibrium model essentially says there are few long-run features of the NGDP data. In a sense there are only three between 1948 and the present:

• The Korean war and the permanent build-up of the Department of Defense (the military-industrial complex)
• Women entering the workforce
• The housing bubble

This means that, using this frame, the gradual fall in recovery performance is really about the gradual fading of the burst of nominal growth that came with women entering the workforce and has little to do with policy choices of the present compared to policy choices of the past [1]. Other recoveries were stronger because they were riding a wave where half the population was moving into GDP-measured work.

...

Footnotes:

[1] I want to stress that this doesn't mean policy couldn't change the situation. They would just have to be policy choices on the scale of the social change involved when women entered the workforce, or generating the military-industrial complex. For example, there is some evidence that the Affordable Care Act (Obamacare) may have generated a small economic boom in terms of employment. It does not appear to be large enough to show up in the NGDP data, though.