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Gross domestic product figures show that in the recent downturn the economy experienced its sharpest contraction since at least the 1940s. But a Federal Reserve economist argues that the recession was even more severe than GDP suggests.
In a paper being presented Friday at the Brookings Panel on Economic Activity, Fed economist Jeremy Nalewaik examined the differences in GDP and a closely-related measure, gross domestic income. GDP measures the output of the economy as the sum of expenditures — consumption, plus investment plus government spending plus net exports. GDI measures total income in the economy.
In theory, the two measures should equal one another, in practice they don't quite, and Mr. Nalewaik argues that GDI is the better of the two.
He finds that when the Commerce Department's Bureau of Economic Analysis revises its national income and product accounts, GDP figures move more closely inline with GDI. GDI also appears to have a stronger correlation with other economic indicators, and its recent movement around turning points suggests it more closely tracks the economy.
He notes that GDI fell far more sharply in the teeth of the recession, dropping at a 7.3% annual rate in the fourth quarter of 2008, and 7.7% in the first quarter of 2009. GDP, in comparison, fell by 5.4% and 6.4%. Moreover, while GDP showed the economy began to grow in last year's third quarter, GDI showed it continued to contract. (Fourth-quarter GDI figures aren’t yet available.)
“[T]he latest downturn was likely substantially worse than the current GDP? estimates show,” he writes. “Output likely decelerated sooner, fell at a faster pace at the height of the downturn, and recovered less quickly than is reflected in GDP? and in conventional wisdom.”
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Good to see someone ‘in the tent’ questioning GDP. Improper accounting of ‘net exports’ and the questionable assignment of government bailout money have left GDP wanting.
GDI – stronger correlation with other economic indicators, try correlating it with inflation; not consumer cost but business cost. But efforts are to suppress inflation. Efforts are also to suppress expanding debt and to save. Are efforts out to create a giant collapse of Spring 2011? Or will the American consumer just start spending again and not caring? No the numbers are just suffering from something called pretty.
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This is what happened to America— —————————————————————————————————————————————————————- What Greenspan, Bernanke, most economists, Bush & Obama Administrations, Fed and Wall Street didn’t see coming and still can't see is American labor and wages have been “debased.” The Neoconservatives, Republican Congresses, a few stupid Democrats and Regan & Bush Administrations for years changed existing laws, legislated tax breaks for corporations and the Elitist top 1% of Americans at the expense of the other 99%. Couple this with a catalyst such as the collapse of the mortgage banking industry & housing prices, a liquidity crisis and pending credit card catastrophe. Then add in years of Union busting, GAAT (Uruguay Round - 1986-1993), NAFTA, CAFTA, Vietnamese, Central America and other Trade agreements, hundreds of thousands of H1-B & L-1 work visas, years of outsourcing jobs to 3rd world countries and open borders all which help eliminate the higher paying jobs, pensions and benefits for a majority of Americans. This was the foundation our economy was built on and now it’s gone. The huge amount of spendable income/benefits these high paying jobs formerly supplied America and the World Economy has disappeared… gone forever. Resulting in a gigantic transfer of wealth from average Americans to the World's Elitist top 1% and coffers of Corporate America. ——————————————————————————————————————————————————————– America and many of the World economies are now headed towards a depression. Many European countries will exit the depression years before America do to economies based upon higher paying manufacturing jobs providing pensions, social programs and other benefits for their citizens. Unfortunately the Neoconservatives, Republicans, Elitist top 1% and Wall Street outsourced American Industry to 3rd world countries. Therefore, American will spend years rebuilding its “former” self. Its industrial based economy that for sixty plus years provided most Americans with a high standard of living, benefits and plenty of excess cash to spend “buying 30% of the worlds manufactured products.” —————————————————————————————————————————————————————— The above listed events, most occurred under Greenspand and his understudy Bernanke, have now placed America on the road to bankruptcy with the largest national debt, and growing, in the history of the free World. America’s new Service Industry based economy with its low paying jobs, no pensions or benefits will turn this recession into a depression… lasting years. —————————————————————————————————————————————————————– Wake up people the Elitist run World Banks, Investment Banking, Federal Reserve and Necon-Republicans make the mafia look like a bunch of boy scouts.
Real Time Economics offers exclusive news, analysis and commentary on the economy, Federal Reserve policy and economics. The Wall Street Journal's Phil Izzo and Sudeep Reddy are the lead writers, with contributions from other Journal reporters and editors. Send news items, comments and questions to realtimeeconomics@wsj.com. Read more Economics coverage.
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