Thursday, June 09, 2011

The mystery of Yglesias

Matty Y has put up a mysterious blog post called "The non-mystery of the recession".

He shows this graph:

And then says "As for the current recession, this just goes to emphasize how non-mysterious everything is"

And that to me is mysterious!

Is he saying the fall in consumption explains the fall in GDP (rather than vice versa or both being caused by a third factor)?

Or is he saying that the current recession is typical of US recessions?

People, the recession we have endured and its aftereffects are anything but non-mysterious.

GDP and consumption usually snap back to trend relatively quickly after a recession in the USA. The current case, where GDP and consumption are moving along a path parallel to but below the original trend is rare and, dare I say it, mysterious.

Either Matty is too deep for me, or Matty doesn't know what the word "mystery" means (or both I guess could be true).


John Thacker said...

FWIW, Greg Mankiw has some papers strongly disagreeing with the trend-stationary hypothesis (things snap back). More also here, with some other links in that post.

In fact, those papers suggest that it's snapping back to trend that is quite rare, and occurred really only in the early '80s.

Carlos said...

I think he's saying that Y = C+I+G+X-M, and those things on the left-hand-side are all independently determined. A fall in I started the downturn, then the fall in C kept it going. Cutting G would clearly be a really bad idea.

Economics is easy. It's philosophy that's hard.