The White House is talking about derivatives again! As in Calculus, though that’s not the word being thrown around. Christina Romer is the Chair of the Council of Economic Advisers, and a week ago she was quoted in an article in the Christian Science Monitor (from the October 22 JEC hearing) as saying:
Most analysts predict that the fiscal stimulus will have its greatest impact on growth in the second and third quarters of 2009… By mid-2010, fiscal stimulus will likely be contributing little to growth.
That article apparently caused some confusion, so she clarified the situation in The White House Blog:
As a teacher, I should have realized that many people have trouble with the distinction between growth rates and levels….When we go from no stimulus to substantial tax cuts, increases in government spending, and aid to state governments, this has a large effect on the growth rate of real GDP – just as when you press hard on your car’s accelerator and go from 0 to 60, you have a great change in your speed. This sense of acceleration is exactly what we have been experiencing since the start of the year. Fiscal stimulus has been steadily increasing, raising GDP growth by between 2 and 3 percentage points in the second quarter and between 3 and 4 percentage points in the third quarter….. We expect that stimulus will continue to have a positive effect on growth in the fourth quarter of 2009 and well into 2010, though, by design, not by as much as it did in the second and third quarters of 2009. As a result, we expect the largest effect of the stimulus on the levels of GDP and employment to occur well after the largest effects on growth rates.
At some point, the stimulus plateaus at a high level. That is important too. Such continued stimulus may not add much to growth, but it is keeping the levels of GDP and employment much higher than they otherwise would have been – just as keeping pressure on the accelerator keeps the car going at 60 mph.
So here’s another kind of situation to discuss in those calculus classes! And presumably the words “point of inflection” could also be brought into play, since that is apparently where Christina Romer thinks we are at right now.
*”again” referring to Hugo Rossi’s quote “In the fall of 1972 President Nixon announced that the rate of increase of inflation was decreasing. This was the first time a sitting president used the third derivative to advance his case for reelection.” from the October 1996 Notices of the AMS.