Friday, September 13, 2013

Wherein I nit-pick Profs. Paul Krugman and Mark Thoma: respect the Oil choke collar!

-by New Deal democrat

Yesterday Bonddad linked to an excellent article by Prof. Mark Thoma on why the recovery has been so sluggish. If you haven't read Thoma's piece yet, by all means do so. This morning Prof. Paul Krugman amplified on a post from earlier this week about how this recovery, like the last two, has been distinctly un-V-ish, citing the zero lower interest rate bound and nominal wage rigidity.

One picks fights with such luminaries at one's peril, but this is more nit-picking. You see, actually, if you measure by real GDP, the recovery actually was rather V -ish:

There were 6 quarters from peak to trough, and 8 quarters till we surpassed the prior peak.

Additionally, there are a host of other measures that started off looking V -ish, but then faltered at about midyear 2010. Here's one of them, industrial production:

What could have caused the downshifting of so many indicators into second gear at around that time? Oh, yeah:

That's when Oil ramped up back over $3 a gallon and stayed there. Give me $1.60 a gallon gas, or even $2.60 a gallon gas, instead of $3.60 a gallon gas, and I'll show you one heckuva V-shaped trajectory.

From Bonddad:

Earlier this week I noted that oil's price charts are very bullish.  In addition, the political situation in the Middle East is such that it will provide upward pressure on oil.  Here's an updated daily chart:

Prices are still elevated.  While momentum and volume inflow are weakening, they are still positive and fairly strong.