Précis
Banks and factories
Money and happiness
Recovery began in November 2001
The structure of the banking system, it seems likely enough, will have an influence on how industry start, grow, decline, and die. One thought, according to Nicola Cetorelli in the Federal Reserve Bank of St. Louis Review, is that less competitive banking might favor new firms in the expectation that big banks would be able to secure "rents" when such firms turn profitable. Or, Cetorelli points out, more competitive banks might be the ones to seek out such new business.
Cetorelli uses data from the Longitudinal Research Database the Census maintains for manufacturing establishments, earlier studies of bank deregulation, and data from the Federal Deposit Insurance Corporation to study this issue carefully. The results tended to favor the second hypothesis. Bank deregulation has a significant positive impact on the rate of job creation in new establishments and bank concentration has a significant negative impact on the growth of employment in new firms relative to total employment. Taken together, says Cetorelli, this might even suggest that market power on the part of banks might be a barrier to entry.
As manufacturing establishments become "middle aged"—2 to 10 years old—banking competition has little effect on job creation, but deregulation is associated with lower rates of job destruction. As manufacturers evolve into "mature" firms—over 10 years old—Cetorelli finds that some of these relationships change. Specifically, bank concentration becomes positively associated with expansion.
"More competition in banking," says Cetorelli, "appears to promote job creation among industrial establishments at the start-up stage and to permit them to prosper in the immediate wake of their entry into the market." As a result, more bank competition may tend to encourage an industrial structure with more new firms and higher proportions of total employment in younger establishments.
Economists have generally been somewhat leery of subjective measures such as "happiness." However, as Carol Graham, Andrew Eggers, and Sandip Sukhtankar point out in "The Effects of Income Losses and Gains on Happiness: Do Temporary Trends Matter?" from the Brookings Institution Center on Social and Economic Dynamics, the increasing availability of survey data has led to their increasing use by economists willing to take into account their margins of error. Graham, Eggers, and Sukhtankar explore using the permanent income hypothesis to understand changes in the reported well-being—economistese for "happiness"—of respondents to the Russian Longitudinal Monitoring Survey from 1995 to 2000.
Carefully noting that the results are preliminary and subject to influences ranging from the volatile Russian economy to the difficulty of collecting income data from individuals, the authors find that their proxy for permanent income changes had more influence on happiness than did their measure of transitory income change. This is in accord with the general outlines of the permanent income approach. They also found that while income loss was associated with a decline in happiness, as one would expect, the size of the loss seemed to make little difference. On the other hand, both income gains and the size of the gain had positive effects on the survey’s measure of happiness.
According to Graham, Eggers, and Sukhtankar, "These results suggest that respondents evaluate income gains in a more nuanced or sophisticated way than they do losses. Perhaps people who gain income were more likely to consider that income gain as something that they valued and devoted more time to comparing their gain with gains made by other people. People who lost income, by contrast, may have been more likely to accept the loss as a one-shot negative shock, and not to dwell on the extent of their loss. In other words, losers were trying not to cry over spilt milk (or, more accurately, measure the amount spilt), while gainers were more interested in—and happy—counting their gains."
Recovery began in November 2001
The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) determined that a trough in business activity occurred in the U.S. economy in November 2001, thus ending the recession that began in March 2001. The recession lasted 8 months.
Identifying the trough involved weighing a wide variety of economic indicators, with particular emphasis on real personal income and payroll employment, since both reflect the entire economy. Less emphasis is placed on industrial production and real sales, which mainly cover the manufacturing and goods-producing sectors, and unofficial estimates of monthly real GDP.
All the major indicators of economic activity were flat or declining through September 2001. Real GDP then began to grow and continued growing; this growth in the most comprehensive measure of economic activity ruled out the possibility that the trough came later than the fourth quarter.
Estimated monthly GDP and the sales measures reached their lows in September. However, personal income, employment, and industrial production were all substantially lower in October and November than in September, and some of the depressed level of activity in September 2001 was the result of the events of September 11, and thus should be discounted. From October to November, industrial production and sales fell, employment edged down, personal income rose slightly, and monthly real GDP rose moderately. Based on the balance of this, NBER concluded that the economy reached a trough in November.
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