The inflection point

A is flying an airplane. He is flying higher and higher until he manages to disable the jet engines. The plane's altitude continues to increase for a bit because of its momentum. Then A turns over the controls to B.

Shortly after B takes over the plane reaches a maximum altitude and then starts to fall. He manages to restart the engines, but it takes a while to recover and the plane loses a lot of altitude before it starts to climb back up again.

And he's still climbing, but hasn't reached the heights A reached because B is flying by more responsible rules and has some nasty storms that A didn't have to deal with in the meantime. Now we're considering a new pilot, who has never flown a plane and thinks A was a better pilot than B because A reached higher altitudes.

Now tell me - when did the problems start? When A killed the engines? Or when the plane reached a maximum height and started falling?

And when did things start improving? When the plane started pulling out of the dive? Or when the minimum altitude was reached and it started climbing?

David Brock wants to use the peak as the starting point of a recession. That this peak occurred during 2 months into Bush's administration pleases him because he doesn't like Bush (in more ways than one) and wants to blame the recession on him. He goes so far as to say that the Republican claim that the recession started under Bill Clinton is a lie.

Believe me, David Brock knows about lying. But as his post cites, he has some support from the National Bureau of Economic Research, which uses the peaks as bounds for measuring recessions and expansions.

That they would do so is not surprising, because peaks and valleys are easy to measure. It's far more difficult to tell exactly when things "started to get better/worse".

But for deciding who'll make a better President we don't need precision. We just need a definition that can be used to tie economic performance to economic policies of a particular administration. Anything that can keep the accuracy within a 4 year window is good enough.

And we know for sure that George W. Bush had only been in office for two months when this peak was reached. His staff was probably still replacing the W's on keyboards when this peak happened - he certainly hadn't had time to effect any economic policy changes. We are forced to conclude that if we can hang this economic performance on the President whose policies were in effect, Bill Clinton is the guy responsible. So Brock's story fails even on its own terms.

But even if the recession had come later that wouldn't have let Bill Clinton off the hook. Things had to have been fouled up well before the peak was reached. If business activity were a smooth function, this would be sometime around the "inflection point" before the peak, when the graph started curving downward instead of upward (it's the point at which the the second derivative became zero - did that help?). That puts the start of the recession well within Clinton's 8 year watch.

Suppose you think I'm all wet and you like Brock's reasoning. Fine, run with it. Note that it shows the beginning of the expansion that Bill Clinton enjoyed was before Bill Clinton entered office. So it appears that the guy who ran for President claiming that we had "the worst economy in 50 years" not only was lying, but was not responsible for the upturn in the economy - it started before his policies came into effect. (Of course using my reasoning the result is the same, only that the expansion started even earlier in Bush 41's term). We have no evidence that John Kerry's economic policies will be better than Bill Clinton's, and by now we know that Clinton's led us to a recession after Bush 41's recovery.

Anyway, despite my trademark digressions, the general idea of this post is that thanks to the tremendous momentum of and lags in our economy, things can be hosed well before we reach the peaks and things can be on the mend before we hit bottom.

And we can conclude that the last two expansions were started by guys named Bush and the last recession was caused by the policies of Bill Clinton.

Donald Luskin takes another approach here, but the conclusion is the same.