Question: the economics of recession

Looking at the runup to 2008 makes me wonder if there aren't indicators that could be relied on to produce gov't intervention, without a persistent brake.

Sez WP, 1980-2001, the ratio of median home prices to median household income fluctuated from 2.9 to 3.1. In 2004, it was 4.0, & by 2006, 4.6.

Seems to me, once it got above 3.5, or even 3.25, it should have been a sign to do something.

Or are there "blips" where it spikes higher & doesn't stay?

OTOH, is a drop under 3 a bad sign, too?
 
Seems to me, once it got above 3.5, or even 3.25, it should have been a sign to do something.

Or are there "blips" where it spikes higher & doesn't stay?

OTOH, is a drop under 3 a bad sign, too?
I think you’re asking real good questions.

The near financial meltdown of Sept. 2008 was caused by subprime mortgages repackaged and resold as derivatives on top of derivatives. And I think inflated real estate prices contributed.

Inflated real estate was involved in Japan’s mid-1990s recession and basically their slow economic growth ever since.

And inflated real estate was involved in the U.S. Savings & Loan crisis around 1990 and ‘91.
 
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I think you’re asking real good questions.
TYVM. :cool:
The near financial meltdown of Sept. 2008 was caused by subprime mortgages repackaged and resold as derivatives on top of derivatives. And I think inflated real estate prices contributed.

Inflated real estate was involved in Japan’s mid-1990s recession and basically their slow economic growth ever since.

And inflated real estate was involved in the U.S. Savings & Loan crisis around 1990 and ‘91.
IMO, there's no doubt inflated real estate was a major factor. If you take out the real estate speculation that fed on the spike in home prices, you take out a lot of the mortgage defaults. (Investors could, & did, frequently just walk away.)

That's not even counting the lack of regulation on mortgage brokers & their resultant ability to make NINJA loans.:eek::rolleyes::mad:

U.S. government efforts to support home buying weren't helping, especially when mortgage deductions overwhelmingly went to people who didn't need the help; when getting the aid enabled them to buy bigger, more expensive houses; & when this enticed lower-wage buyers to aim at purchases they could increasingly not afford.
 
IMO, there's no doubt inflated real estate was a major factor. . .

That's not even counting the lack of regulation on mortgage brokers & their resultant ability to make NINJA loans.:eek::rolleyes::mad:

U.S. government efforts to support home buying weren't helping, . . .
And then, the derivatives built on this junk.

I guess ideally I’d like to see a pie graph of how much different causal factors were responsible. Don’t know if such a thing is available.
 
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. . .:rolleyes: If typical derivatives are smallpox, these were ebola.:eek: . .


Casino


Casino


Casino

To take the three largest “investment” banks (cough, cough!!) . . .

If I were a member of the U.S. House or Senate, I think I’d refer to any of these three as casinos. And if an executive corrected me, I think I would literally push my tongue against the inside of my cheek, stare at them, and slowly nod my head.

That is, I’d very much spar with the executive and give him or her a chance to embarrass themselves.

And I’d take a page from conservatives and keep it very simply and straightforward. We want to re-instate Glass-Steagall. We want to use Sherman Anti-Trust and similar to break up the big boy banks in a very orderly and lawful way. No mess, no fuss, and no getting gray-area-ed.
 
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keep it very simply and straightforward. We want to re-instate Glass-Steagall. We want to use Sherman Anti-Trust and similar to break up the big boy banks in a very orderly and lawful way. No mess, no fuss, and no getting gray-area-ed.
All given, IMO. (I take "breakup" to apply only to the survivors, since the true deadbeats have already been wound up & closed down.)

I'd add a requirement the ratings agencies have a duty (fiduciary duty?) to the people asking for ratings to provide accurate ones, or (at a minimum) a ban on taking money from the companies offering the instruments as conflict of interest.

I'd also add a 90% tax on stock options (not deductible by the company, either), 90% capital gains tax, & 90% tax on all income over US$2 million.

I've contemplated a stock trades tax, too, but heard arguments it hurts the market. I'm not clear how; I'd target the tax to hit "flip trades" or short-term holds hardest (as speculation), & actually reward "buy & hold"--which is actual investing. That, IMO, reduces volatility & actually increases actual investment.
 
The recession is dated from Dec. 2007 to June 2009.

Which makes a lot of sense, too much a house of cards, and then a downturn. Bear Stearns almost goes bankrupt March ‘08, Lehman Brothers does go bankrupt Sept. 15, ‘08, and then AIG almost goes bankrupt a day and a half later. And saving it may have been the lynchpin which prevented a bad situation from getting a whole lot worse.
 
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I recognize there are business cycles & geopolitics of resource availability at play, which makes me wonder: given a recession in any particular year (say, 1958), did a recession have to happen that year? What sorts of factors could have butterflied it entirely, or pushed it forward or backward?
To the original post, one of the biggest issues with analyzing recessions in retrospect is that they are super obvious, but (perhaps somewhat obviously) hard to predict looking forward. We all naturally gravitate to looking at real estate indicators in the years leading up to 2008, but in actual 2005-2007, it would have been hard to guess that those were the right indicators to be looking at. Were I an economist in 2005-2007, I'd have probably been most concerned with tech stocks and national security issues since the combination of 9/11 and the dot-com bubble is what triggered the last recession. It's like generals trying to fight the last war.

More applicably, when writing alternate history, it should be easy to adjust a recession by messing with the underlying factors. It should, just as in real life, be tremendously difficulty to predict a recession and actively take steps as a character in story to diffuse one.
 
More applicably, when writing alternate history, it should be easy to adjust a recession by messing with the underlying factors. It should, just as in real life, be tremendously difficulty to predict a recession and actively take steps as a character in story to diffuse one.
I'm less concerned about that, since that's a function of story progress. What I wanted (or hoped for) was a way to tell where a recession was likely, given the changed economic conditions.

A recession in OTL 1958 makes sense. A recession in 1958 where WW2 ends a year or two sooner & there's no war in Korea, frex, doesn't.

The events of a story taking place during said recession will be driven, in part, by the TTL's gov't officials & their policies, plus author fiat as needed.;)
 
Take the periodicity of recessions (aggregate) for your period (ie: 45-72). Note the timing. Note major state expenditures (Korea, Moon, Vietnam, Great Society). If you remove major state expenditures a local recession should come sooner but shallower. If you increase later and harder. At the end of the period as systems of labour accumulation and/or capital realisation change expect massive disciplinary recessions.

so if you end the war in 43: 48-45 = 3 ~= 43 + 3 = 46. Unless Greece goes hot. Then the recession will be delayed until North Greece is stablised and armistice talks start. Then hit harder in 49.
 
Also in the model I’m outlining you can use any trigger for the period to a 1989 equivalent: the panic will be a market and credit panic that causes recessive contraction by disinvestment.

If you want Soviet style recessions it’s a bit more complex. They’re not western fordists.
 
What I wanted (or hoped for) was a way to tell where a recession was likely, given the changed economic conditions.

A recession in OTL 1958 makes sense. A recession in 1958 where WW2 ends a year or two sooner & there's no war in Korea, frex, doesn't.
Right, I think I understand. What I'm trying to say, poorly evidently, is that for any given recession like 1958 you can push it forward or back or eliminate one causal reason entirely by doing what you suggest. However, there is no valid way to predict any general recession ever. Take the protagonists from The Big Short: they didn't figure out that a recession was likely and then work out that 2008 matched those conditions, they figured out the housing crisis and built up from there. Essentially, you can go recession -> retrospective indicator very easily. Doing the reverse is possible, but very tricky and a case-by-case prospect at best.

The events of a story taking place during said recession will be driven, in part, by the TTL's gov't officials & their policies, plus author fiat as needed.;)
From a writing perspective, with the justification of author fiat, you can, as noted do pretty much whatever you want. Plausibility, that is similarity to existing recessions, is probably more important than fidelity to the economic ins-and-outs of a world that doesn't have anywhere near the documentation and study as OTL.
 
I agree.

I remember this guy telling how his high school civics teacher said the unemployment rate is either 0% or 100%. If you’re working, it’s 0%. But if you’re looking for a job and not finding it, unemployment is 100%.

A lot of truth in that! :openedeyewink:
Recession: My best friend loses his job.
Depression: I lose my job
Recovery: That nasty politician I can't stand loses his job.
 
Right, I think I understand. What I'm trying to say, poorly evidently, is that for any given recession like 1958 you can push it forward or back or eliminate one causal reason entirely by doing what you suggest. However, there is no valid way to predict any general recession ever.
I got both of those, more/less. Maybe I'm also being unclear: I'm after a way to credibly say there would/wouldn't be a recession in any given year, & not have it look either ridiculous or artificial.

I guess the question is, can I explain the reasons for a recession (or not) adequately.
Take the protagonists from The Big Short: they didn't figure out that a recession was likely and then work out that 2008 matched those conditions, they figured out the housing crisis and built up from there. Essentially, you can go recession -> retrospective indicator very easily. Doing the reverse is possible, but very tricky and a case-by-case prospect at best.
IRL, I'd agree with you. Since we're all just making it up, it's a matter of picking some indicator(s), mentioning them, & saying the TTL conditions that resulted (&, at need, how they differed from OTL).

I have no hopes of trying this as a consulting business, or anything. :eek: :openedeyewink: (Tho Bale's character's worries about water do seem eminently reasonable to me.)
Take the periodicity of recessions (aggregate) for your period (ie: 45-72). Note the timing. Note major state expenditures (Korea, Moon, Vietnam, Great Society). If you remove major state expenditures a local recession should come sooner but shallower. If you increase later and harder. At the end of the period as systems of labour accumulation and/or capital realisation change expect massive disciplinary recessions.
If I understand you correctly, then, a U.S. that had none of those (handwave it for illo) would have a number of dips on OTL schedule, & in around '72, something like another '29 Crash? (Maybe not that same scale...) And the likes of Arab oil restrictions wouldn't matter much? Or are you counting those in with the "dips"?
 
I got both of those, more/less. Maybe I'm also being unclear: I'm after a way to credibly say there would/wouldn't be a recession in any given year, & not have it look either ridiculous or artificial.

I guess the question is, can I explain the reasons for a recession (or not) adequately.
I do not think there's a special sauce for what you're asking, e.g. cite this number and you're golden.

However, I do think you can address causes of a recession or not recession in a narrative form and that that strengthens the narrative. In his regard though, I think what you're looking for is pretty much the same as any timeline just focused on the economy rather than armies moving across countries or politicians making such-and-such decision. Any PoD can result in any number of different timelines, many of them plausible, it's a question of the author to sell them by doing the research and writing a solid story.

As an example let's go with two timelines about the 2008 Crisis - the PoD is Glass-Steagal remaining untouched in 1999.

Timeline 1: Glass-Steagal is saved because Senator Phil Gramm ate a weird sandwich in 1999 and got a tummy ache (I don't actually care about why Glass-Steagal is saved). Over the course of years there's less money being dumped into derivatives, but overall the same decisions are generally made. Bear Stearns is still in over its head and gets sold forcibly by the Fed to JP Morgan Chase. The subprime-mortgage contagion spreads to Lehman Brothers, but unlike OTL it's in a bit better shape as the market for credit default swaps and the like is smaller as the investment banks have less money to play with on account of Glass-Steagal. Because of this slightly better position, the British regulators who denied the Barclays merger OTL, instead let it through. Lehman Brothers is then "saved" enough to assuage the stock market at least for the time being. The Fed and Treasury feel very little relief as they realize they've dodged a bullet, and act aggressively on AIG. Finally WaMu is saved as being a commercial bank, because of Glass-Steagal, there is no run by investors because no one is worried about the dodgy back-room deals they do still have, but in lesser quantities. With no major bankruptcies, and the Fed and Treasury seemingly having the problem in hand, the 2008 recession is more like 2001 than 1929. Hooray!

Timeline 2: Glass-Steagal is saved because Congressman Thomas Bliley accidentally spills his drink on Senator Gramm and they never agree to team up for the Gramm-Leach-Bliley Act. As it turns out, the idea that Glass-Steagal was a dead letter by 1999 is true. All the same risky investments with CDOs and CDSs still happen. Bear Stearns collapses and is merged into JP Morgan Chase (here JP Morgan and Chase are technically two different banks operating in an unorthodox partnership arrangement). Lehman Brothers also collapses. Unlike OTL, Bank of America cannot buy Merrill Lynch, as BoA is technically a commercial bank and Merrill is an investment bank, and the US regulators won't let the merger through. The Fed still bails out AIG, but with the bankruptcy of Lehman and Merrill Lynch, the market is a mess. There's a run on WaMu because no one cares that it's not technically an investment bank, it's still shot through with dodgy investments. This is when things get really bad. In short order Morgan Stanley and Goldman Sachs, cut off from the emergency funds the Fed could loan to commercial banks, but no investment banks, begin to go under too. Mitsubishi attempts a merger-save with Morgan Stanley, but Morgan Stanley is simply too large, and ultimately goes under. In a heroic endeavor JP Morgan Chase somehow generates the capital to save its longtime frenemy Goldman Sachs through a merger, but doing so exhausts the teetering behemoth. As the failure of bank after bank rocks the globe, and individuals lose trillions, JP Morgan Chase, Citibank, and Bank of America are left, truly too big to fail, as the last three functional banks in the metaphorical smoking wasteland of the Second Great Depression.

I think either is plausible, if slightly exaggerated. While both are economics-focused and (hopefully) tell a decent story about two very different recessions, the important part is the research and selling the narrative much more than being economically iron-clad. I know it's a little off from what you're asking, but does this make sense?
 
I do not think there's a special sauce for what you're asking, e.g. cite this number and you're golden.
... I think what you're looking for is pretty much the same as any timeline just focused on the economy rather than armies moving across countries or politicians making such-and-such decision. ...As an example let's go with two timelines about the 2008 Crisis - the PoD is Glass-Steagal remaining untouched in 1999.

...I think either is plausible, if slightly exaggerated. While both are economics-focused and (hopefully) tell a decent story about two very different recessions, the important part is the research and selling the narrative much more than being economically iron-clad. I know it's a little off from what you're asking, but does this make sense?
I don't take issue with either of those outcomes. What you've got is a clear reason for either one, which isn't always available. It's just pulling a recession out of my hat I'm concerned by. Not doing it in '58, as described, makes sense. Doing one in the early '70s, sparked by the Oil Shock, makes sense. Doing it any other time, I'd hesitate--or, at least, until (unless) I decided for sure if I did/didn't have a *Great Society program, frex, based on the above suggestions.

That said, I don't take issue with your proposition selling the story is more important.
 
I don't take issue with either of those outcomes. What you've got is a clear reason for either one, which isn't always available. It's just pulling a recession out of my hat I'm concerned by. Not doing it in '58, as described, makes sense. Doing one in the early '70s, sparked by the Oil Shock, makes sense. Doing it any other time, I'd hesitate--or, at least, until (unless) I decided for sure if I did/didn't have a *Great Society program, frex, based on the above suggestions.
I think I'm finally seeing the underlying issue here. In an economics focused timeline it's easy to draw a cause-and-effect string between economics events. Likewise, in a political focused timeline it's easy to draw a cause-and-effect string between super obvious political moves like the 1973 oil embargo and economics events like the 1973 recession. However, it's hard to just have an economy running in the background of a political timeline and then showing up for a sudden recession only to slink into the background again.

For this I can argue in three directions:

One, you can just ignore the economy unless it's politically relevant. Since the U.S. got off the gold standard in 1973, the only 100% ironclad important recession was the Great Recession, which I'm sure you'd devote time to in a TL. Otherwise recessions happen in the background and unless it's a presidential election, it's not very important and even then, you can write political reasons that mostly ignore it.

Two, build a simple model kind of like what Sam R. has been suggesting: tweak the time of some causal events so the recession happens early. Or just use Excel or a similar system to work out random intervals so a recession happens on average once every 8-10 years or so, tweak as needed by your specific TL events.

Three, make an economy. It doesn't have to be super important, but work in what the economic effects are for maybe a big bank, or an auto-manufacturer or a steel company. You could have a PoV character or two who's an everyman and works a regular job like a logger or airline pilot or something regular. The character can talk about the day-in-day out small stuff that foreshadows recessions; things like ease of getting a mortgage or investing in certain kinds of stocks or price controls or anything like that. Then even if it is "out of your hat" it won't feel like it. Also if in writing from the character's economic perspective, you realize "hey investing in bauxite makes a lot of sense in this TL when it didn't OTL," maybe that's the start of an ATL bauxite bubble. It would fit narratively and economically in the story.

If it helps, you can imagine a recession as equivalent to a slow-growing illness. You're not going to see all the effects all the time in advance but you can plant little signs around and there are some obvious situations that are bad. Like if a character smokes all the time, they'll probably get lung cancer.
 
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If I understand you correctly, then, a U.S. that had none of those (handwave it for illo) would have a number of dips on OTL schedule, & in around '72, something like another '29 Crash? (Maybe not that same scale...) And the likes of Arab oil restrictions wouldn't matter much? Or are you counting those in with the "dips"?
Broadly. You're going to get post-war. Post war is going to bleed through until the skilled and semi-skilled (a new category created just for white people!) working class are bought off. Then the buy off will spur a consumer economy. And the predelicion for state spending will *generally* keep growth positive. Insert a war? Instant boom, followed by recession. Cut all the programmes? That's a lot of Lockheed workers not buying Fords.

I'm suggesting:

There's a Kondratieff wave present in all capitalist economies. Seven years is a good bet for post-war Fordism.
Major state intervention disruptions can delay or advance, but not blunt, the wave.
There is an *even greater* wave to do with "is capitalism succeeding or not?" where the recession that suffers these contradictions will be heightened.

* * *

Here's a story:
In the early to mid 1930s the United States builds a few more cruisers faster.
Their economy is more developed earlier, and so more capable of winning a war.
Lo: a major war is concluded by 1943/4.
Major strikes occur in 1944/5. There is a recession. It is bad.
Then the United States goes to war with a former ally. It isn't a major war. Just a proxy war. In China or Greece. This makes the recovery faster.
Then the war ends and there is a recession in 1950.
Ford and GM discover that workers that can afford cars buy cars. This is significantly helped by the cheapening of labour in generalised war Fordism relative to the cost of capital goods. Ford, GM, the United States Government, Lockheed, etc., decided to buy white working class allies by limiting dividend taking, holding share price growth down, cheapening capital, and reducing the rate at which workers are made relatively poorer. The white working class, mispricing the cost of 1952 cars in 1932 dollars, views this as massive wage increases and comes (largely) onside.

But then there's a share crisis / run on credit / insitutions big enough to fail that fail in 1959 because they mispriced commodities whose prices changed because Israel invaded Egypt with UK and French support in 1959.

But this bounces back because Richard Nixon announces that men who aren't communist will walk on the moon, that Laos must be defended, and that Black Protestants deserve to eat and sleep without being rained on.

But the concept of a reduction in the share of total economic output per worker decreasing less rapidly than in the past has made workers bold in general. A religious revival amongst White Students of Compassionate Christianity brought on by a Religious Black Leader transmogrifies when bastardised Islam radicalises small portion of inner urban white students who commit violence. The real story though, despite burning cities, is that black workers are starting to capture union branches in low skill / high volume work places.

This puts the market on notice and the fall of the Republic of Vietnam in 1969 to an internal multiple corps military uprising crashes the Japanese market (a reflection of Japan's export of war items to the RVN). The strike waves and clamp down result in 10 years of industrial unrest until Democratic Racists, led significantly by the "Team 2" group inside the FBI, dedicated to eliminating domestic communism, introduce paternal corporatist institutions focused around high skill / high margin output. The conservative, somewhat Atheist turn, of racist corporate Democrats has the incidental affect of making underground married "swingers," and their allies who "aren't married but seem to swing without women" align towards right-centrist positions of general regulation of capital without corporate company-union cooperation.

Call them "Keynes' cruisers."

* * *

The basic structure of capital is that the underlying value which is respected (calculated input costs that resolve to labour-power eventually), is both mis-priced internally by firms and externally by the market. This is due to time estimation (and human fallibility). The market is just hundreds of thousands of central plans coming together.

Now imagine a fantasy where central planning works.

That's the fantasy of capitalism without crises.[*1]

The problem is that institutions are too big to fail.

Joe gets a loan until pay day instead of killing himself.

Jerry is on 90 day terms when he only deserves 30.

Susan has credit at 4% instead of 7%.

Karol doesn't pay her OSH insurance.

Kamal isn't paying pensions for the post-office.

Brian is buying second derivatives of the aggregate market price. On margin.

A recession often involves someone suddenly realising that that is not the price of eggs, and the real price of eggs being redetermined viciously (often with labour losing most, as labour has sunk costs, and isn't too big to fail.).

* * *

Societies or institutions too big to fail entirely, or too big to fail in an internal market (think about how Marketting always gets away with being shit? Whereas Production is whipped); institutions too big to fail, or be bailed out, have different failure modes. Think of the Soviet Union's failure mode as a cascade of failure to supply on 30 day terms. That's the 1951-55 economic crisis straight up. The trigger was Yugoslav withdrawal from coal/power agreements, for some reason involving repeated attempts to kill a head of state.

yours,
Sam R.

[1]: As I said, I can do this for the Soviet Union as a value-form society. Kornai, J. Overcentralisation is an example of in period research.
 
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I'm suggesting:

There's a Kondratieff wave present in all capitalist economies. Seven years is a good bet for post-war Fordism.
Major state intervention disruptions can delay or advance, but not blunt, the wave.
There is an *even greater* wave to do with "is capitalism succeeding or not?" where the recession that suffers these contradictions will be heightened.
The basic structure of capital is that the underlying value which is respected (calculated input costs that resolve to labour-power eventually), is both mis-priced internally by firms and externally by the market. This is due to time estimation (and human fallibility). The market is just hundreds of thousands of central plans coming together.
This is heterodox to most current economics, but it might be better suited to make models for the OP's economic needs in writing a timeline. It's certainly firmer on causation and effect, which could make it easier to work with. As I've said, the narrative is really the important thing in any story, and any element of that story first and foremost must help the overarching narrative.
 
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