Center for Business and Economic Research - Ball State University


CBER Data Center
Projects and PublicationsEconomic IndicatorsWeekly CommentaryCommunity Asset InventoryManufacturing Scorecard

About

Commentaries are published weekly and distributed through the Indianapolis Business Journal and many other print and online publications. Disclaimer

RSS Feed

Disclaimer

The views expressed in these commentaries do not reflect those of Ball State University or the Center for Business and Economic Research.

Recent

Two Key Economic Lessons in One BillHoosiers face trade-offs and opportunity costs in the wake of SEA1.

Time to Fix Economic Development PolicyAllocating tax dollars to land development won’t cause economic growth.

The Unanticipated Effects of SB1Businesses, governments and households may all feel the effects.

The Stupidest of PoliciesThis whipsawing of tariff rates has unnerved financial markets, which on Wednesday, were toying with a liquidity crisis.

View archives

Top Tags

jobs and employment 261
economics 201
state and local government 188
education 186
economic development 171
indiana 171
budget and spending 145
taxes 144
law and public policy 142
workforce and human capital 139
Browse all tags
Reporter / Admin Login

July 12, 2015

Hazards to Our Recovery: China, Greece and Time

I have long admired how the Irish professor Clive S. Lewis acknowledged the apparent sterility of scientific models and theories when faced with the beauty and seemingly endless complexity of the real world. He argued that although as useful as the wonderment of a great ocean view might be, a simple map of the ocean is a bit more valuable when crossing it in a boat. As we think about the current economy, I am tempted to describe the many interesting elements that come to play. But for the purpose of understanding where we are in the world this weekend, I will turn to the sterility of models.

The current U.S. recovery dates to July 2009, so we now begin our 85th month of economic expansion. That is the third longest economic expansion for which we have reasonable data, and we have that data back to the 1850s. One way to consider the relevance of this fact is through the use of a mathematical model called a ‘cumulative hazard function.’ This hazard function allows us to use statistical analysis to predict how long something will last: a business, a bridge, a human life, or an economic expansion, given the accumulation of events each will experience over time. Some of these are events are negative, some positive, while most may be irrelevant.

These models work well when we have long time periods to observe, with many different events, and many businesses or bridges to evaluate. Unfortunately, we don’t have lots of recessions to evaluate—only a few dozen worldwide and many of which are linked across countries. So, it is the insight of the model that is most useful, not the double integrals.

After 84 months, many things have happened, both good and bad. We’ve had two devastatingly bad quarters that looked a lot like new recessions. Labor markets weathered one of them, but have not yet overcome the other. We’ve seen all the BRIC nations teeter into a mild slowdown and then recover. We’ve seen a mild, mostly southern, European recession come and go without lasting damage to our economy. Labor markets are improving, albeit very slowly, and all seems rosy.

Over the past three weeks though, two things have occurred that offer grave risk to our recovery. The most reported event has been the collapse of the Greek economy and financial system. The likely exit of Greece from the EU monetary system, the failure to repay several hundred billion in loans and the deepening of a depression there is sufficient to bump us into a recession.

Far more worrisome, though, is the more quietly bursting stock bubble in China. Over the past three weeks, the Chinese stock market, previously thought to be carefully managed by the government, has lost one-third of its value. It is in full collapse, dragging down commodities and other stocks.

I’m not yet predicting a recession, but the cumulative hazards of these events should be very worrisome. There is more than enough bad news here to kill the recovery. 

Link to this commentary: https://commentaries.cberdata.org/794/hazards-to-our-recovery-china-greece-and-time

Tags: china, europe, united states of america, economy


About the Author

Michael Hicks cberdirector@bsu.edu

Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. Note: The views expressed here are solely those of the author, and do not represent those of funders, associations, any entity of Ball State University, or its governing body.

© Center for Business and Economic Research, Ball State University

About Ball State CBER Data Center

Ball State CBER Data Center is one-stop shop for economic data including demographics, education, health, and social capital. Our easy-to-use, visual web tools offer data collection and analysis for grant writers, economic developers, policy makers, and the general public.

Ball State CBER Data Center (cberdata.org) is a product of the Center for Business and Economic Research at Ball State University. CBER's mission is to conduct relevant and timely public policy research on a wide range of economic issues affecting the state and nation. Learn more.

Terms of Service

Center for Business and Economic Research

Ball State University • Whitinger Business Building, room 149
2000 W. University Ave.
Muncie, IN 47306-0360
Phone:
765-285-5926
Email:
cber@bsu.edu
Website:
www.bsu.edu/cber
Facebook:
www.facebook.com/BallStateCBER
Twitter:
www.twitter.com/BallStateCBER
Close