The Shape of Economic Decline

Federal debt is less the cause than the measure of troubles in our private-sector economy

I didn't see it coming, but pardoning the January 6th insurrectionists makes perfect sense, as Trump won the insurrection of November 5th.  

I only hope the US economy survives.

Three Eisenhower Recessions, and one other thing

My Google Search: "the eisenhower years" "three recessions" in quotes like that. The search results led me to this bit of text, exactly what I was looking for, from Wikipedia's "Presidency of Dwight D. Eisenhower":

There were three recessions during Eisenhower's administration—July 1953 through May 1954, August 1957 through April 1958, and April 1960 through February 1961, caused by the Federal Reserve clamping down too tight on the money supply in an effort to wring out lingering wartime inflation.[169][175]

Note 169: Frum, David (2000). How We Got Here: The '70s. New York, New York: Basic Books. p. 296. ISBN 978-0-465-04195-4.

Note 175: Barone, Michael (2004). Hard America, Soft America: Competition Vs. Coddling and the Battle for the Nation's Future. New York: Three Rivers Press. p. 72. ISBN 978-1-4000-5324-7.

I didn't need the recession dates. I needed someone to say the recessions were caused by the Federal Reserve. I needed confirmation. Furthermore, to be clear, I didn't need them to say the Federal Reserve caused the recessions on purpose. I needed it said that the Fed's purpose was to fight inflation; and I need it understood that recession is a likely outcome when the Fed is fighting inflation.

Checking the reference: On page 296 of the Frum book we read: "President Eisenhower ... accepted three recessions over his presidency to wring out the last of the wartime inflation." 

I got what I needed.

A second search-result caught my eye:

The 1960s and President Kennedy's Successful, Supply ...
American Enterprise Institute
https://www.aei.org › carpe-diem
Aug 17, 2013 — And during the Eisenhower years, the economy grew at a subpar 2.4% yearly rate, including three recessions. But then came the 1960s, the ...

The link is "Let’s Not Forget the Decade the Liberals Love to Hate: The 1960s and President Kennedy’s Successful, Supply-side Tax Cuts" at AEI. When I saw the long version of the title, it didn't look so interesting anymore. Then I saw the article was written by Mark J Perry, and I got even less interested.

Perry quotes Larry Kudlow:

From 1944 to 1960, with a top tax rate of 91 percent, the U.S. economy expanded at an anemic 2.1% annual pace. And during the Eisenhower years, the economy grew at a subpar 2.4% yearly rate, including three recessions.

I am distracted, losing sight of "three recessions" because Kudlow makes an argument by implication. He suggests that US economic growth was "anemic" and "subpar" because the top tax rate was so high. Kudlow does not use the word "because" in that excerpt, but he doesn't have to. By putting the idea of high taxes and the idea of subpar growth together, he suggests to the reader that the high tax rate caused the slow growth.

Kudlow does not force this conclusion on his readers; he allows readers to reach their own conclusion. But his technique makes the conclusion more personal and quite possibly stronger, despite the absence of evidence. 

If growth was slow in the Eisenhower years, it is because three recessions dragged the average down.

In the AEI article, Mark J Perry hints at a series of tax-rate reductions beginning in the 1960s:

In ... 1962 ... the highest marginal individual income tax rate was 91% and ... by 1964 the top personal tax rate was 77%, dropping further to 70% in 1965.

Confirming Perry's hint, FRED has a dataset that shows a 30-year trend of tax-rate reduction:

Graph #1: Hover over the Graph at FRED to See the Tax Rates
https://fred.stlouisfed.org/series/IITTRHB

 
Now, about that one other thing. Perry and Kudlow want us to think that the Kennedy tax cut made the economy great in the 1960s. But as Graph #1 shows, tax rates are far lower now than they were in the 1960s. Yet our economy is not booming now.

I know: It doesn't feel like tax rates are low. But that's because our economy is so bad. A decent wage is hard to find. Something is wrong with the economy. When people like Perry and Kudlow say that tax rates are high, many people say yeah, that must be it.

That's not it. (The problem is the cost of excessive finance; the cause is economic policy; the reason is either (a) politicians still think that credit is good for growth and debt is not a problem, or (b) politicians are rich and make a lot of money by lending. I'm not sure which.)

Economic growth is definitely slow now. Here's a graph showing "peak growth" of Real GDP. It shows long-term decline with very few interruptions:

Annual US Real GDP Growth Rate and the Trend of Peaks  1948-2023

On this graph,

• The lows don't go low in the 1960s, possibly because of the Kennedy tax cut.
• The lows don't go low in the 1980s, possibly because of the Reagan tax cuts.
• The lows don't go low in the 1990s, despite the Clinton tax increase. And
• The overall trend of economic performance is downhill, as the red line shows.

Yeah, growth was good in the 1960s. Perry is right about that. But growth was also good in the 1950s, except when recessions slowed things down. By my count, 27 of Eisenhower's 96 months in office were recession months.

By contrast, under JFK and LBJ combined there was just one month of recession: February 1961, the last month of the third Eisenhower recession. 

It wasn't high tax rates that slowed growth in the 1950s. Fighting inflation slowed growth.

I miss my Mish

Some memories --

• May 2013
• February 2015
• December 11, 2023

And now a word from President Eisenhower

Should any party attempt to abolish social security and eliminate labor laws and farm programs, you would not hear of that party again in our political history. There is a tiny splinter group of course, that believes you can do these things [...] Their number is negligible and they are stupid.

 

The quote is footnoted to

Mayer, Michael S. (2009). The Eisenhower Years. Facts On File. p. xii. ISBN 978-0-8160-5387-2.

Source: "Presidency of Dwight D. Eisenhower" at Wikipedia

Google Scholar search-by-date

When I restrict the dates for a Google search, sometimes Google finds the wrong date in search items. For example in Google Scholar just now I searched the phrase political economy in disarray for the years 1750-1775. The search turned up 4 results. The first of them opened to "Chapter Four: The Early National Period: 1775-1815" by Peter P. Hill, from the book A Companion to American Foreign Relations, published in 2008. The chapter title was probably the source for the date Google Scholar used in response to my request.

Second of the four results was "A Language for the Nation: A Transatlantic Problematic", a chapter from the book Revolutionary Histories presented by Springer Nature. The page presents an Abstract which begins with the words "Early in the 1750s, Scotsmen Adam Smith and John Stevenson were lecturing on rhetoric..." That sentence was probably the source for the date.

Third was "The Policy of Rome towards the English-Speaking Catholics in British North America (1750-1830)" by Luca Codignola. This appears to be chapter 5 from the book Creed and Culture, on offer by De Gruyter. The only date I saw for that item was in the title.

And fourth of four, a PDF titled "The Materiality of Death". On the title page, below the title this one says "BAR International Series 1768" and below that, the date 2008. 

All four were results reported for the period 1750-1775. Hey, I'm not complaining. This is my hobby, my idea of fun and relaxation. But I want to advise caution, for you and me both, against blind faith in date-related search results from Google Scholar -- and from Google Ngrams, and perhaps other Google services.

It's not a total waste. I'm looking for things that strike me as interesting. And by the time I got to the years 1800-1825 my search turned up the Google Book General introduction to Statistical Accounts of Upper Canada, published in 1822. Yeah, not interesting, but at least the date is good.

The 1900-1925 search turned up the Google Book Absentee Ownership and Business Enterprise in Recent Times by Thorstein Veblen, copyright 1923. It contains one use of the word "disarray" which doesn't serve my purpose, but now at least I can say I've read a little Veblen.

Another from that search is another Google Book: The Theory of the High Cost of Living, by Michail Osipovič Kefeli, translated from the Russian, published in 1923. The blurb for the search result said:

… None of the classical works on political economy pay any serious attention to the question … Only such gigantic blunders can explain the unprecedented economic disarray, which we …

Jackpot. I'm interested. The first fragment of that blurb led to this, from page 9:

Laws against speculation are a complete novelty. The law codes beginning with the Roman one contain no mention of speculation. On the contrary the laws of all the States recognize the right of the owner to dispose of his goods at his own price.

None of the classical works on political economy pay any serious attention to the question of speculation; on the contrary economics as a science teach us that the prices and profits cannot be raised in accordance with the merchants' wishes, but are regulated exclusively by the relation between demand and production.

Evidently speculation is either a new scientific discovery of our days or it is a phenomenon, which has just only made its appearance.

I like it. So next I read the opening:

The high cost of living, which has spread throughout the world, has turned in Russia into an overwhelming famine and in Sovdepia (the land of bolshevism) into a nightmare with all the horrors of cannibalism and desperate mortality, exceeding all ever existant wars and epidemics. This frightful calamity took humanity by surprise, as a storm overtakes a thoughtless traveller ...

and then the conclusion:

But all this does not demolish the high cost of living and the endless miseries of the population. The idea that it is necessary to introduce some improvements however insignificant, into capitalistic regime, for example limiting the consumption to certain normal standards and opposing the speculation, are so deeply rooted in the minds of men of all sorts, that it is doubtful, whether the State will have the courage to revert to the old economic policy existing up to now throughout the world; all the more as this idea is continually strengthened by half rations, mad rise of prices, the authoritative statements of deceptive science and the general mystery which enshrouds the present situation.

Therefore we can but surmise, that that one, who will be called to lead the country from this enchanted circle, will not be a man of high ideals, but a such one, who will be ready to sacrifice the fantistic theoretical welfare of his subjects for the sake of the actual strengthening of his power.

 

Anyway, here's what I wanted to see:

Graph #1: Search Results by 25-year Period (except 2000-2024)

Graph #2: Ditto, on a Log Scale

Google always reports "about" so-and-so many results. Sometimes those numbers are way off, I know. The graphs show the counts reported.

Yadda yadda yadda, economic performance declines

Following up on my previous post. Here is the graph, again:

Graph #1: Financial Crises and Economic Growth

The Trump Musk DOGE plan to cut two trillion dollars of federal spending is a plan that will almost certainly create a financial crisis unless it is offset by a two-trillion-dollar increase in private-sector investment -- two trillion dollars in addition to the investment already planned for the year of federal budget cuts. That increase is not likely to happen.

Graph #2: The Red Line Shows a Two-Trillion-Dollar Increase in One Year

All of the investment shown on this graph since the first quarter of 2017, in total, adds up to less than two trillion dollars.

And again, as Milton Friedman said,

There is strong evidence that a monetary crisis involving a substantial decline in the quantity of money is a necessary and sufficient condition for a major depression.

You know how many times Google finds this Friedman quote on the internet? 8 times. Almost no one is focused on the problem of an insufficient quantity of money. But as Yoda says: You will be. You will be.