Does Your First Derivative Have the Same Sign As It Did Four Years Ago?!

September 4th, 2012 at 7:41 pm

Crunching on other matters all day and didn’t get have a chance to get into this question that’s dominating the campaign news as to whether you’re better off than you were four years ago.  Many useful things to read: here, here, and here.

I’ll leave the politics to others.  Let me just say a few words about the substance.  I’ve consistently stressed that when it comes to how people shape their opinions about the economy, the direction of economic variables often matters even more than the levels.  Sure, an incumbent would be better off running on a low level of unemployment, but a high level doesn’t disqualify him if the trend is his friend.

In this regard, the R’s who think they’ve got a gotcha with the old Reagan question may find less traction than they’d hoped for.  They’ve also raised Jimmy Carter’s economy as a comparison to the current one, and that actually provides a good example of what I and the other links above are talking about.

What the R’s are missing here, and it’s really pretty obvious, is that there’s a huge difference between sailing into a storm and sailing out of a storm.  Jimmy Carter was heading into a deep recession; Barack Obama is heading out of (a much deeper) one.

I run through the gamut of variables here, and OTE regulars know I’m not an alarmist, but four years ago GDP and employment were collapsing, unemployment was spiking, the housing market was steadily worsening, credit markets were frozen, and 2/3 of the auto industry was on the verge of liquidation.  Trends you wanted to be going up were cliff-diving and visa-versa.

Most of those trends have reversed.  First derivatives—rates of change—that were negative have turned positive.  Not positive enough, for sure.  We need to see things not just moving in the right direction, but moving there faster (we want our 2nd derivatives to be positive as well, i.e., accelerating rates of change).  And not all variables are moving together.  While income losses have slowed, they have yet to convincingly reverse (i.e., there’s reversal in the aggregate—as shown below in real disposable per capita income—but not at the median).

But to pine for a return to the period when the economic meltdown was getting white hot—well, for the life of me I can’t imagine why anyone would want to go back there.



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3 comments in reply to "Does Your First Derivative Have the Same Sign As It Did Four Years Ago?!"

  1. Nylund says:

    But what about the 2nd derivative?

  2. Nhon Tran says:

    Jared – thank you.
    I agree that the high level of unemployment won’t necessarily disqualify the President. I look at life from both sides now and I see that 91% still have jobs, although many of them want to work more hours and get better pay. The economy is growing and jobs are being created (albeit both at a slow pace)so while most of those in employment do care about their fellow Americans out of work, they are generally probably less and less concerned that they will lose their jobs. So they won’t wait for the incumbent with a baseball bat (I think that’s an Aussie political saying about voters wanting to clean out the incumbent).