Business cycles, not Presidents

Every president tries to take credit for a good economy and to avoid blame for a weak economic situation.  So, it occurred to me that studying the true reasons for significant economic growth or loss would be eye opening, so here is my attempt to get to the real facts about our economy…good and bad.

The health and performance of our economy is measured by GDP (Gross National Product).  Before we can make comparative analysis of different years, we must understand the four components that make up GNP: Consumer spending currently makes up almost 70% of GDP. Business investment and government spending each contribute about 17% of the total. Our balance of payments (a negative trade balance which indicates that we import about 4% more than we export) is subtracted from the total.

So, in an endeavor to determine the factors that have caused changes in GNP, I identified 9 significant changes that occurred between 1962 and now. These are periods where the GNP was significantly higher or lower. These periods may last for just a year or two or much longer until something changes causing GNP to change as a result. We can choose the years with statistical perfection but determining the factors which contributed to the changes is a much less perfect process. It’s almost certain that one thing didn’t cause an entire variation, and the truth involves many factors. However, there are overriding factors that most contributed to the changes, and those are the subject of our discussion here.

This analysis is not about the stock market, which is another subject altogether. The market is the estimated valuation of businesses as an investment based on their future profit expectations. It is probably true that in times when GNP is growing, the stock market may also be growing, but there are separate factors governing these different aspects of our economy.

Significant growth periods and principle cause(s)

1. 62-66    Government spending in space exploration and social engineering
2. 72-73    Inflation growth driven by rising energy prices
3. 76-78    Dramatic increases in business productivity and inflation
4. 83-89    Housing and automotive sectors surge with assistance of tax cuts
5. 94-20    The business cycle driven by technology (Dot Com boom)
6. 10-17    Dramatic increases in world trade

During 2010 to 2017…GNP increased from $14.9 trillion to $17.1 trillion. That’s a growth of 18.6% for the period or 2.3% average annual growth. This long and slow recovery from the great recession has seen Americans regain 91% or 14.6 trillion dollars of their lost wealth. It is important to note that the regain has gone primarily to the wealthiest Americans while millions have never recovered their losses. Both political parties agreed that the government must act to facilitate the recovery and save the nation’s troubled large banks. The American Recovery and Reinvestment Act of 2009 was a stimulus package that was intended to create jobs and promote economic recovery.  It was not totally successfully, but it saved the nation’s big banks.

During the period, unemployment has declined on a straight line from 10% to 4%. This has been a period of steady but slow improvement with annual GDP rate increases from 1.5% to 2.9%.  The Federal Reserve has played a role in this recovery with quantitative easing, a program to keep interest rates low. The primary growth vehicle has been the dramatic expansion of world trade. Our world trade exports increased from 1.278 trillion dollars in 2010 to 2.342 trillion dollars in 2016. This represents a 1.1 trillion-dollar increase, 83.2% or an average annual increase of 13.9%. Our economy growth is absolutely linked to the world trade opportunities we are enjoying because of globalism.  So, the primary cause of the steady but slow recovery from 2010 to 2017 comes from the improved business cycle primarily the result of increased worldwide trade.

Next, I might try to prove whether presidents are responsible for good weather.