Now look at the dark blue lines (that's the US) in both graphs. Compare them to the other lines. Did you see what you expected to see, on both graphs?

Before you look at Stephen's graphs, ask yourself this question. How well did the US fare in the Great Recession, in terms of GDP and employment, compared to other G7 countries?

Stephen's got standards. So I'm going to steal his graphs from his last post , and write the post he could easily have written.





OECD data in both graphs.

I could understand if the US had the worst output and employment during the recession. I could fake up some explanation. "The US, with the bursting of its house price bubble, was the epicentre of the financial crisis, blah, blah...".

I could understand if the US had the best output and employment during the recession. I could fake up some other explanation. "The US, with its free market economy and labour mobility, is remarkably resilient to shocks, blah, blah...".

What I can't understand is why the US had the second best output, and yet by far the worst employment. That would require two fake explanations, and it would be hard to make those two explanations consistent.

Each of us thinks our own country is normal. We try to explain why other countries are different. That's especially true if our own country is a large country, like the US. But when you compare the US to all the other G7 countries, you see that it's the US that is abnormal, and in need of explanation.

Ignore the US in Stephen's graphs, and everything looks normal. Some countries did worse than others, and the countries that did worse on GDP tended to do worse on employment. You get roughly the same ranking on either measure. Moreover, the decline in GDP was about two or three times as big as the decline in employment. That's what we would expect, from Okun's Law. It's the US that doesn't fit the pattern. The US is abnormal, and in need of explanation.

Okun's Law tells us that labour productivity, crudely measured as GDP/employment, and ignoring subtleties like hours worked and quality of labour, normally falls in a recession. Because the percentage fall in GDP will be two or three times as big as the percentage fall in employment. And it did fall in all the other countries. But in the US it didn't fall at all. Labour productivity actually increased. GDP fell a little over 4%, peak to trough, and employment fell nearly 6%, so the GDP/employment ratio increased by over 1%.

The US is an even bigger puzzle if you think that business cycles are caused by productivity shocks. Sure, you could always argue that US firms and workers were expecting even bigger productivity growth, so when it actually came in at only 1%, that was a negative shock to productivity. But you would have to work hard to convince me that that's plausible. And what were all the other countries expectations for productivity growth -- chopped liver?

Why did US productivity increase during the recession? Why doesn't your explanation also apply to the other 6 countries?

Why is the US an exception?