by Timothy Taylor, Conversable Economist
Whenever the US economy looks shaky, one of the most common questions I hear is whether this recovery has “run its course” or “gotten old.” The downturn of the US economy during the Great Recession ended back in June 2009, so it’s now been about 80 months of an economy on an (often frustratingly slow) upswing. There’s a basic statistical answer to this question, but there’s also a broader issue that tackles of how to think about a “business cycle.”
When looking at the path of economies over time, you see recessions and recoveries. But there also a well-known is a common cognitive pattern of“paraedolia,” which refers to looking at randomness and perceiving patterns that aren’t really there. Even using the conventional term “business cycle” for patterns of recession and recovery hints at a belief that the economy is be based on underlying patterns and dynamics that will cause it to rotate in a preordained way from recovery to recession and back again. When people ask whether the recovery is “getting old” or has has gone on “long enough,” they are presuming this kind of “cycle.”
The statistical answer to whether economic upswings die of old age can be answered statistically, and Glenn D. Rudebusch summarizes the conventional wisdom very nicely in “Will the Economic Recovery Die of Old Age?” written as the Federal Reserve Bank of San Francisco “Economic Letter” for February 8, 2016. Rudebucsh uses a kind of graph called “survival analysis,” which can be applied to people’s chance of dying, to part of a machine wearing out or breaking, to whether economies fall into recession, and many other applications.
As an example, here’s a survival curve for the probability of an American male dying in the next year, The graph shows that the chance of dying in the next year doesn’t rise very much at all for men up to the age of about 50 or 60, but then it starts to rise steadily with age.
