Is this a picture of the Double Dip starting?

In a Paul Krugman post about the good news in Fed Chairman Ben Bernanke's speech — ironically, the good news is that Bernanke now acknowledges the bad news — the Professor includes a Fed-generated graph of where we are.

Normally, to show where we are in the Great Recession, Krugman graphs "real employment," the ratio of employed people to eligible population. He considers this a much more accurate view of actual unemployment than the headline unemployment number, which has been tweaked by past presidents beyond recognition. (I agree.)

But this time, his graph of where-we-are shows GDP — in particular the ratio of actual GDP to the CBO projection of potential GDP consistent with full employment. That graph looks like this:


A few things to notice: (1) This is a ratio, so "1.00" on the vertical scale up near the top is the place where the two values are equal. It's the 100% mark, the place at which Real GDP equals Potential GDP (as defined).

(2) The chart starts at 2001, so the initial drop you see from 101% to 98% is the Clinton tech bubble bursting, followed by a slow recovery.

(3) About that 2001–2007 recovery: As we noted here, most of the income growth in that recovery was captured by the upper 1% of the population.

The exact number: $2 of every $3 went into their pockets. For the upper 1%, that growth was rain from heaven, which the rest of us didn't see. (Note that GDP growth is more than just income growth, but income growth is a large part.) I'll have more to say about the upper 1% — who they are and how they live — shortly.

(4) And finally, notice the tail. If that doesn't look like a double-dip starting, I don't know what does.

The brief rise during 2010 is the inadequate stimulus doing its feeble best. (Note that the 2010 peak of just below 94% is far short of the post-Clinton low of 98%. Another indication that we needed much more stimulus than we got.)

This ratio might be a worthwhile metric to keep an eye on. I hope the Professor keeps it updated.

GP