Brad deLong - why the US economy is still depressed. Wherein we get this useful chart:
Meanwhile, again, that green line represents the collapse in government spending since 2010, which (wonder of wonders!) has a negative effect on growth. How much potential have we missed out on? This much:
Back in 2007 those whose business it was to forecast the American economy were confidently projecting that, come 2015, nominal GDP–the total amount of spending in dollars on currently-produced and marketed goods and services in the United States, plus imputed rent on owner-occupied houses–would be $21.5 trillion. It will be about $18.3 trillion. Back in 2007 they were projecting that real GDP at 2009 prices would, in 2015, be $18 trillion. It will be $16.5 trillion. Back in 2007 they were forecasting that 87% of 25-54 year-old males would have jobs, not 84%. Back in 2007 they were forecasting that 72% of 25-54 year-old females would have jobs, not 70%.
Why? At the arithmetic level, it is because residential construction and government purchases have fallen far below their expected trends by a lot, consumption spending has fallen below its previousy-expected trend by a little, business investment is more-or-less at its previously-expected trend, and only exports have boomed relative to 2007 expectations.
And as far as market commentary is concerned? Well, on the one hand, the US could see a drop in exports if USD continues to appreciate; meanwhile, the 20-25 demographic is a pretty big lump about to work its way through the US economy, which gives hope that residential spending might eventually pick up.
I think those two factors move on different timescales though.
And it seems Brad reads my blog:
And governments are not responding to market signals: financial markets are telling them that they have a once-in-a-lifetime opportunity to advantageously pull spending forward from the future into the present and push taxes back from the present into the future. But, because of the ideology of austerity, they are not taking advantage of this opportunity.
Sure I thought of it first, but I'm happy to see more people spreading the news.