When looking at a historic depiction of U.S. GDP over 20 years, its fairly hard to avoid noticing the business cycle. The lighter line showing the year over year change in the annual rate of GDP reveals fairly regular periodic oscillations:

                                      Real GDP growth, % change, annual rate
Graphic courtesy of Lombard Street Research

As these cyclical changes suggest, the broader business cycle of expansion and contraction beats (to a large degree) to it own internal rhythm. One would be hard pressed to find a ‘headline cause’ for each and every strengthening or weakening of the economy shown above. It is to a large degree organic.

Of course, there is a false conceit that the President largely controls the economy. I agree with other commentators who suggest that Presidents get too much credit for good economies, and too much blame for bad ones. At least, relative to what their marginal impact on the business cycle actually is.

So that makes the chart below even more ironic: How is it that two Presidents — each named Bush — managed to time their Presidencies to coincide with the 2 major economic recessions of the past 20 years:

                                                  Bush Recessions, 1990, 2001

Was it bad policies? Something genetic? Or just dumb luck? Regardless, one has to laugh at the sheer absurdity of the coincidence.

The chart above helps explain why the Bush administration is backpedalling so desperately to pre-date the 2001 Recession into 2000, attempting to put it firmly under the watch of the Clinton administration:

The Commerce Department released benchmark revisions to GDP back to the first quarter of 2001, which showed a different pattern than the previously seen three quarters of decline. The new data showed that GDP fell 0.5% in the first quarter of 2001, then rose at a 1.2% pace in the second quarter, and fell at a 1.4% rate in the third quarter. The old 2001 data had GDP falling at annual rates of 0.2%, 0.6%, and 1.3% in the first through third quarters, respectively.

Armed with a negative third quarter in 2000, Mr. Bush and others in his administration have been arguing that they “inherited” a recession when they took office. In fact, the new data would suggest that there was no recession at all, according to the oft-cited definition of a recession as a downturn in economic activity represented by at least two consecutive quarters of falling GDP.

Its not just ego: The fear is that blame for the recession is more resonant if it started under Bush II, rather than merely inheriting the slow down form Clinton.

This is a peculiarly amusing parallel — between father and son — each presiding over the two most significant downturns of the last 25 years happening under Presidents named Bush. Of course, rationalists will tell you that both recessions would have happened anyway, even if neither Bush took office. But if you are superstitious, it makes you wonder what bad family mojo is kicking around, potentially making both Presidents one termers.

Stay tuned.

U.S. Economic Growth Slows As Consumers Curb Spending
WALL STREET JOURNAL, July 30, 2004 2:05 p.m.


Category: Finance


3 Responses to “Recessions: A family affair?”

  1. Bill Kemperman says:

    A look at any 5 year chart of the Dow, Nasdaq, or SP500 will clearly show that the huge drop in stock prices began under former president Clinton, viza vi, the beginnings of the recession . I don’t need any fancy private or gov’t figures to show me otherwise . I do not credit either good times or bad to a president , but to natural market cycles.

  2. it wasn’t a recession?

    a few days ago, i mentioned the two-year decline in american incomes. the “escape clause” was that the income decline occured during a recession. nevermind that other recessions since 1953 hadn’t produced income declines. today, that escape clause vani…

  3. spencer says:

    I do not think the interesting question is about the recessions.

    The more relevant questions should be:
    1. Why were these the two weakest economic recoveries in history? They are well below the range of all other recoveries.

    2. Has the economy, market become more stable?
    the 1980s and 1990s were the longest recoveries in history. Was it luck or structure is something economists are spending a great deal of work tying to answer. If it is structural lower economic — stock market volatility should lead to a long run structural upward shift in the stock market PE.