What if we used statistical techniques to quantify the impact of the Federal Reserve and population growth on Real GDP from 1800 to today?
If we assume that annual changes in Real GDP are a function of annual population growth and the 1800-1913 vs. the 1914-2006 era what would be their impact? Why pre 1913 vs post 1914? That's because the Fed was established in 1913.
So here's what I found (using a dummy variable for Fed years 1914-2007):
1. Real GDP Growth is ~4.1% per year from 1800 to present.
2. Population growth and GDP growth are almost perfectly inversely related- meaning a 1% growth in population causes a 1% decline in GDP growth.
3. And, most surprisingly, the existence of the Fed actually reduces growth .6% per year!
Now, the confidence interval is quite wide (-2.8% to 1.6% at a 95% level of confidence), but low statistical significance hasn't gotten in the way of the super-governmental organizations from making bold pronouncements on climate so why should it stop me from drawing conclusions?
Anyway, the data seems to say that the Fed actually SLOWS economic growth.
So here's what I found (using a dummy variable for Fed years 1914-2007):
1. Real GDP Growth is ~4.1% per year from 1800 to present.
2. Population growth and GDP growth are almost perfectly inversely related- meaning a 1% growth in population causes a 1% decline in GDP growth.
3. And, most surprisingly, the existence of the Fed actually reduces growth .6% per year!
Now, the confidence interval is quite wide (-2.8% to 1.6% at a 95% level of confidence), but low statistical significance hasn't gotten in the way of the super-governmental organizations from making bold pronouncements on climate so why should it stop me from drawing conclusions?
Anyway, the data seems to say that the Fed actually SLOWS economic growth.
So you are now saying, "that this is probably true but there is a tradeoff in terms of lower growth for less economic volatility."
But is that assumption true?
If we take the standard deviation of Real per capita GDP from 1800 to 1913 the range is +-3.7%. But the surprising thing is that the deviation from 1914-2006 is +-5.1%! In other words, the existence of the Fed corresponds with HIGHER VOLATILITY in per capita income growth!
If we take the standard deviation of Real per capita GDP from 1800 to 1913 the range is +-3.7%. But the surprising thing is that the deviation from 1914-2006 is +-5.1%! In other words, the existence of the Fed corresponds with HIGHER VOLATILITY in per capita income growth!
What the hell is going on?
The analysis is telling us that the Fed SLOWS GROWTH AND INCREASES VOLATILITY! Had the Fed not been created, ostensibly to smooth out the business cycle, our REAL incomes would be 25% higher today!
So why do we have a Fed again?
Source Data: Louis Johnston, Department of Economics,College of Saint Benedict at Saint John's University and Samuel H. Williamson, Department of Economics, emeritus
The Miami University
The analysis is telling us that the Fed SLOWS GROWTH AND INCREASES VOLATILITY! Had the Fed not been created, ostensibly to smooth out the business cycle, our REAL incomes would be 25% higher today!
So why do we have a Fed again?
Source Data: Louis Johnston, Department of Economics,College of Saint Benedict at Saint John's University and Samuel H. Williamson, Department of Economics, emeritus
The Miami University
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