Economic Argument for Austerity Based on Excel Error?

[OttoVonBismarck]

Keynes was dead by '46 and his opinion was on on how to handle major depressions/panics which were the typical form of economic problem in his lifetime. Any reasonable person would define deficit spending, where the deficit as a % of GDP is higher than GDP growth, as stimulative. We've engaged in such stimulative deficit spending for some time now, we are no longer in recession and have not been for some time. It's not really a textbook example of where Keynes advocated deficit spending. He advocated deficit spending during depressions under the knowledge that high GDP growth following a depression would make it all okay some day. But we had a large contraction and then basically the recession ended and we're now in what looks to be a generational "mild growth" period. The economy can only grow so fast, and there is no reason to expect anything will return us to 5-7% quarters of economic growth like we've had at times in the past, other than some unprecedented technological advancement.

[DGuller]

I don't necessarily agree that 0% growth is the magical threshold.  That's a bit too simplistic.  What matters is whether economy is doing the best it can, or whether there is a slack in output that doesn't fill up on its own.  We have a lot of long-term unemployed, so my guess is that we're still wasting a lot of potential.

[OttoVonBismarck]

I don't necessarily agree that 0% growth is the magical threshold.  That's a bit too simplistic.  What matters is whether economy is doing the best it can, or whether there is a slack in output that doesn't fill up on its own.  We have a lot of long-term unemployed, so my guess is that we're still wasting a lot of potential.

We may be wasting some, but there are structural realities with growth and unemployment. The U.S. is an aging society and barring another large stimulative technology advance it isn't necessarily realistic to think our economy "should" be growing too much faster than it is. In the past large recessions were followed with high growth quarters, sometimes 7-15+%, but in part some of the reasons we entered the recession related to an asset bubble which distorted the underlying "real value" of the economy.

I was looking at a home price chart awhile back, that shows where home prices "should" be if not for the massive bubble we had, and it ends up being about where they are now, with "normal" growth in prices not producing valuations like we had during the bubble for 15-20 years. That's just one market of the whole economy, but I guess what I'm saying is if you enter a steep recession for some transient reasons like a traditional panic then you should expect those follow-up high growth quarters to make up for an economic retraction that was harsher than the underlying value of the economy should have produced. But if the recession and following malaise is just a reflection of economic reality there is no reason to expect those "wonder quarters" that "get you back to where you were."

Average GDP growth since 1947 has been around 3.2%, the last few quarters where we've had 4.1, 2.0, 1.3, 3.1 and .4 GDP growth don't seem that out of the norm. Plus, that average includes a lot of years of fantastic growth, that in our world today with an ascendant China/India, much of the rest of the developing world becoming far more productive, an aging population in traditional economies and slowed population growth I actually doubt our average GDP growth will necessarily be 3.2% going forward. I think there is a fantastic chance we are not going to be a high growth economy going forward whether you drink Kool-Aid with Keynes or Friedman, that means the most prudent thing to do is manage our long term liabilities in a way that we can sustainable service them with the assumption that high growth periods from the past are going to stay in the past.

[Berkut]

I don't necessarily agree that 0% growth is the magical threshold.  That's a bit too simplistic.  What matters is whether economy is doing the best it can,

So as long as the economy is not "doing the best it can" we should spend, spend, spend, spend some more!

How handy, especially with such rigorous criteria as "is the economy doing the best it can? Nope? I guess we need some more stimulus so it can do the best it can! More social spending for everyone!"

[CountDeMoney]

All this talk about GDP is bullshit anyway;  the only metric that matters is the DJIA.  As long as the wealthy are winning, America is winning.

[MadImmortalMan]

Seedy's not wrong. Although I would say that the main reason the stock market is doing well right now is just that there isn't any better alternative place to put anything.

Also, my house has gone up in value about 30% in the last year. That's a bit excessive. In fact it's about the same as 2006-7.

[Berkut]

Seedy's not wrong. Although I would say that the main reason the stock market is doing well right now is just that there isn't any better alternative place to put anything.

Also, my house has gone up in value about 30% in the last year. That's a bit excessive. In fact it's about the same as 2006-7.

I have no faith in any of those kinds of metrics.

I think most metrics that amount to the aggregate of public opinion about the value of much of anything are very poor indicators of the actual health of anything. There are just too many examples of bubbles in modern economic history to put much stock in those things as indicators of overall anything, except human gullibility.

[DGuller]

I don't necessarily agree that 0% growth is the magical threshold.  That's a bit too simplistic.  What matters is whether economy is doing the best it can,

So as long as the economy is not "doing the best it can" we should spend, spend, spend, spend some more!

How handy, especially with such rigorous criteria as "is the economy doing the best it can? Nope? I guess we need some more stimulus so it can do the best it can! More social spending for everyone!"

All I was saying is that the zero point is not as simple as 0% GDP growth.  An economy with a positive growth rate can still be wasting a lot of its productive potential without being on the path to making use of it.  Let's say that GDP grows by 1%, while the workforce grows by 3%, and half of it is unemployed.  I'm sure everyone would agree that this is not a well-functioning economy, even though it's not technically in a recession.  There is no need for histrionics here.

[CountDeMoney]

Seedy's not wrong. Although I would say that the main reason the stock market is doing well right now is just that there isn't any better alternative place to put anything.

Also, my house has gone up in value about 30% in the last year. That's a bit excessive. In fact it's about the same as 2006-7.

I have no faith in any of those kinds of metrics.

I think most metrics that amount to the aggregate of public opinion about the value of much of anything are very poor indicators of the actual health of anything. There are just too many examples of bubbles in modern economic history to put much stock in those things as indicators of overall anything, except human gullibility.

The DJIA is nothing more than the value of make-believe money based on levels of confidence.  Unfortunately, it's the main driver of our predatory capitalist economy.

[Berkut]

"predatory capitalist economy".

OK Karl.

[CountDeMoney]

It RAWRs at you, right before it evaporates your retirement.

[Admiral Yi]

The DJIA is nothing more than the value of make-believe money based on levels of confidence.  Unfortunately, it's the main driver of our predatory capitalist economy.

Does this actually mean something, or are you just stringing words together at random?

Main driver?

[derspiess]

Forget it, Red Seedy is rolling...

[Valmy]

The DJIA is nothing more than the value of make-believe money based on levels of confidence.  Unfortunately, it's the main driver of our predatory capitalist economy.

Does this actually mean something, or are you just stringing words together at random?

Main driver?

It generates capital for all the evul corporations so they can export jobs overseas at an even faster rate.

[Admiral Yi]

Forget it, Red Seedy is rolling...

I get that, but I'm seriously curious whether he thinks the things he posts have actual meaning or whether he's posting screed for the purpose of posting screed.