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Posts tagged with: "GCEC1"

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How Y=C+I+G has evolved

70 years of quarterly national account data

FRED now has 70 years of quarterly national accounts data for the United States, which is an opportunity to look back at how the U.S. economy may have changed since 1947. In the graph above, we look at the three main expenditure components of real gross national product: real consumption, real investment, and real government expenses. They’re normalized to 100 for the first quarter of 1947, to make them more comparable.

The first thing to note is that these aggregates are now a multiple of what they were in 1947. Part of the growth comes from population growth and increases in labor force participation of women, but the majority is from productivity increases as a result of technological progress and new management and distribution techniques. Second, investment fluctuates wildly, which is no surprise to anyone who has studied economic fluctuations. Third, investment’s trend is steeper than consumption’s, while government expenses have increased markedly less since the 1990s. (Note: This does not include expenses related to redistribution.)

How this graph was created: Start at the real domestic product release. Check the three series, then click “Add to Graph.” From the “Edit Graph” tab, change units to “Index” with the date set at 1947-01-01, and click “Copy to all.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: GCEC1, GPDIC1, PCECC96

A counterclaim on countercyclical policy

Keynesian theory tells us that, when economic activity falls, government expenditures should rise. That is, government expenditures should be countercyclical and lean against the business cycle. Has this happened in the U.S.? In the graph, the red line shows growth of government expenditures and the blue line shows growth of private (nongovernmental) economic activity. And it looks like when one line is high the other is low. Does this mean government expenditures are countercyclical?

Actually, this is partly an optical illusion: On average, government expenses have grown more slowly than the rest of the economy, and thus the red line is more often low and the blue line is more often high.

A better way to examine this question is with a scatter plot, shown below. Each axis represents one indicator, and each dot corresponds to a quarterly data point. If government expenses were countercyclical, the cloud of dots would have a somewhat negative slope, with more dots in the top left and bottom right quadrants than the top right and bottom left. The scatter plot actually has a congregation in the middle, which shows there’s little correlation between the public and private sectors of the economy, at least in terms of expenditures.

How these graphs were created: For the top graph: From the Domestic Income and Product release, select “Real Gross Domestic Product, Chained Dollars” and then “Quarterly”; select the GDP and government expenses series; click “Add to Graph.” In the “Edit Graph” panel, add to line 1 (GDP) the government expenditure series again and apply the formula a-b. Use “Percentage Change from Year Ago” as units for the lines and use the slider to start the data in 1953:Q2 (which is after the explosion of government expenses for the Korean War) to avoid distorting the view. For the bottom graph: Use the top graph, but use the format tab to select graph type “Scatter.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: GCEC1, GDPC1

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