The Fed and Business Cycles

Given the recent (official) announcement that the U.S. has been in recession since December 2007, I decided to look at the record of business cycles compiled by the National Bureau of Economic Research. The following graphs depict the length of expansions and contractions (and the trends in both), before and since the creation of the Federal Reserve System in 1913.

Source: “Business Cycle Expansions and Contractions,” National Bureau of Economic Research.

It seems that the creation of the Fed might have had a stabilizing effect on business cycles. (How much of an effect is impossible to tell, given the many other variables at work.)

But…the graphs don’t depict the relative severity of the various contractions. It is worth noting that the worst of them all — the Great Depression — occurred after the creation of the Fed and, in part, because of actions taken by the Fed. (A note to the history-challenged: The Great Depression began in September 1929 and ended only because of America’s entry into World War II.)

In any event, the long-run cost of economic stability has been high. (See this and this, for example.)

By Their Musical Preferences Ye Shall Know Them

Marginal Revolution has become an increasingly “marginal” blog because its dominant contributor, Tyler Cowen, has become increasingly incoherent. It turns out that Cowen is a fan of Elliott Carter, who writes incoherent “music,” of which many samples can be heard here.

Neither sound economics nor good music is consistent with incoherence. Therefore, I have scratched Marginal Revolution from my reading list, just as years ago I scratched my copy of a chamber-music LP to eradicate an unlistenable piece by Elliott Carter.

Maddux to the Hall?

Greg Maddux, who is about to announce his retirement from baseball, is a cinch for election to the Hall of Fame: 355 wins, .610 winning average, ERA+ of 132. But Maddux, like recently-retired Mike Mussina, shouldn’t be ranked with the “immortals” — the 16 Hall of Fame pitchers whose excellence, in my view, ranks them above their peers. (See this post and this post for relevant background.)

Maddux had only two 20-win seasons, which is why he isn’t an “immortal” pitcher, in my book. Roger Clemens, Maddux’s contemporary, had six 20-win seasons (in addition to his 354 wins, .658 winning average, ERA+ of 143), which would make him an “immortal” but for the strong suspicion that his career totals were inflated by steroids and HGH. (It is, by the way, a strong suspicion that cannot be confirmed by statistical evidence.)

P.S. (12/08/08) The election of Joe Gordon to the Hall of Fame is a joke, by my reckoning.

My Crystal Ball

From a post at my old blog, dated January 16, 2008:

On November 14, 2007, I wrote:

Is it possible that the current bull market reached a temporary peak in May of this year, and is now descending toward a secondary bottom that it will not reach for a few years?

This was my tentative answer, then:

A reversal that lasts a year or two seems entirely possible to me.

My less tentative answer, now, is that the stock market (as measured by the Dow Jones Wilshire 5000 Composite Index) has crossed into “bear country.” That is, it has met the two conditions which indicate a “correction” or bear market that will last for months or years:

  • the index has dropped below its 250-trading-day average, and
  • the 250-day average is moving downward (if imperceptibly)….

P.S. [added March 12, 2008] By my reckoning, every downturn in the 250-day average since 1970 has signaled every recession since 1970.

It’s been obvious for months that we’re in a bear market. It’s now also obvious (to the National Bureau of Economic Research) that we’re in a recession and have been since January of this year (a “peak” in economic activity having occurred in December 2007).