Friday, April 08, 2011
Brian Sent Me This
For one thing, the number being shown and calculated in this post at the Aleph Blog is very close to the number that I try to predict. Real GDP Purchases, as shown in the table, have to average above about 1.75 to give us a chance at a sustained expansion. ( In practice in the US economy of recent decades, if it ever drops below 1.50 for a sustained time, recession impends. ) One thing about that number is that it can easily be jacked up with either easy credit or some mechanism of putting money back into consumers' pockets, usually in the form of tax cuts. But if we ever want to get our deficit increase each year under our GDP increase each year, we must end that sort of thing very decisively. By continuing to do this, we are destroying our ability to adapt economically.
The other way to boost Real GDP Purchases without just mailing money to consumers is to boost business investment and exports. There, we are having problems. It seems likely that if we ever decide to put the economy on a better footing, we will have to do so by accepting a short-term contraction or a set of skimming contractions. That's better then a future decade of depression, but I don't think the country is willing to take that medicine yet.
I also think it would be wise at this time to look at Aleph's post from several years ago regarding the Q2 2008 GDP figures.
I don't mean to imply that we are in a second contraction. We aren't. We are rapidly losing forward momentum aside from various government stimulus schemes.