1 Coping With The Limits of Macroeconomic Policy The Recovery from the Great Recession In this presentation • National forecasts are produced by Global Insight, Inc. • State and Metropolitan forecasts are public information produced by the Division of Research and Policy, Wisconsin DOR. • Information is supplied by the U.S. Bureau Of the Census, U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, Federal Housing Finance Authority, Federal Reserve Board of Governors, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of New York, the Wisconsin Department of Workforce Development, and various divisions of the Wisconsin DOR.
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1 Coping With The Limits of Macroeconomic Policy The Recovery from the Great Recession In this presentation National forecasts are produced by Global Insight,
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1
Coping With The Limits of Macroeconomic Policy The Recovery from the Great Recession
In this presentation
• National forecasts are produced by Global Insight, Inc.
• State and Metropolitan forecasts are public information produced by the Division of Research and Policy, Wisconsin DOR.
• Information is supplied by the U.S. Bureau Of the Census, U.S. Bureau of Labor Statistics, U.S. Bureau of Economic Analysis, Federal Housing Finance Authority, Federal Reserve Board of Governors, Federal Reserve Bank of Philadelphia, Federal Reserve Bank of New York, the Wisconsin Department of Workforce Development, and various divisions of the Wisconsin DOR.
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Today’s Themes
1) Living a Half-Fast Recovery.
2) Coping with the Limits of Macroeconomic Policy
3) Prospects for US and Wisconsin in 2011 & 2012
Economy Now Fully RecoveredAt least pending another GDP Revision
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Recovery Already in 29th Month
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Real GDP Growth Has Stalled Compared to Recent Recoveries
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Growth is About Half of Post War AverageRecoveries Aren't What They Used to Be
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Average Real GDP Growth First 9 Quarters of Recovery
September 30, 2011 6
Remember the National Income Identity
Yd = C + I + (X-M) + G
Total Aggregate Demand is the sum of purchases for consumption, investment, net exports and government.
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Consumption Fully Recovered by Late 2010
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National Retail Sales Continue to Rise Around 8.0% Over Prior Year
-12%
-8%
-4%
0%
4%
8%
12%
2007 2008 2009 2010 2011
Total Total Less Sales of M otor Vehicles
Retail Sales
Year-over-year Growth
Exports Recovered Quickly
September 30, 2011 10
Federal Spending Never Faltered
September 30, 2011 11
Limits of Macroeconomic Policy
• Fiscal Policy– Keynesian Fallacy of Composition
– Bill comes dues for 2009 Stimulus
• Monetary Policy– Living in the Liquidity Trap
September 30, 2011 12
State & Local Purchases Matter MoreIn the "G" in the National Income Identity
Lower Mortgage Rates Don’t Spur StartsRelationship Between Housing Starts and Mortgage Rates Breaks Down
0
500
1,000
1,500
2,000
2,500
3,000
Apr-71 Jan-77 Oct-82 Jul-88 Apr-94 Jan-00 Oct-05 Jul-11Source: U.S. Department of Commerce: Census Bureau/Board of Governors of the Federal Reserve System/FRED