robotclubmember wrote:Pretty far from fundamentally okay! The GDP has expanded at an annual rate of less than 1% this year and less than 2% less year, and what little growth there has been has been outpaced by inflation which has exceeded GDP growth.
Stop being bad at life. The reported GDP growth rate is real GDP (ie: net of inflation).
Rayiner, you have been one of the voices of reason on this ridiculous thread.
Robotclubmember has no understanding of economic theory. His chain of causality for macroeconomics, in particular business cycle theory, is obtuse. His (non-existent) understanding of monetary theory is troubling. Further, his understanding of labor market theory, and marginalism in general, is particularly troubling when discussing the legal field.To Address Specifics
The recession occurred because of increasing fragility in the financial sector. An expansionary phase occurred during the mid 2000's due to increasing leveraging due to new financial instruments (ex: those used in real estate.) This led to higher growth but at the cost of economic stability. The federal reserve did not pop the bubble because it was afraid of decreasing economic growth when the threat of financial instability was unknown. If the collapse in the real estate market had been contained (as neoclassical theory suggests) their would have been no problem. This would have been the equivalent to creative destruction. However, when the real estate sector fell (a tiny portion of the economy) this threatened the ENTIRE financial sector (essentially the entire economy.) (http://www.amazon.com/s/ref=nb_sb_ss_i_ ... le+economy
The growth that occurred during the "bubble" was in every way REAL. The only part that was imaginary was in the real estate sector. The problem here, and which robotclubmember clearly doesn't understand, is that a decrease in aggregate demand would decrease real wealth. The collapse of the financial sector would lead to decreased investment across the board due to uncertainty (animal spirits.) This would cause a negative multiplier effect due to the nature of double ledger accounting. During a normal recession the Federal Reserve could increase the money supply indirectly by changing the discount rate and buying Treasury bonds.
Unfortunately, a liquidity crisis occurred. This means that the IS-LM model no longer holds because preference for liquidity is extremely high. In this situation the only way to continue to have growth, and keep the REAL growth that occurred during the bubble, is to increase government purchases. In this sense you can have your cake and eat it too. The basic theory has been around since 1936 (http://www.amazon.com/General-Theory-Em ... 726&sr=1-1
This is a jobless recovery because of the lingering liquidity crisis and changing structural elements in the economy. Historically, it takes many years after a major financial shock for investment to return to normal (http://www.amazon.com/This-Time-Differe ... 590&sr=8-1
) On the other hand an interesting shift has occurred over the last two decades as our economy has shifted from manufacturing to service. It generally takes longer for employment to recover after a recession than before. This is not due to cyclical factors (i.e. the recession itself.) Rather, it is due to structural changes in the economy.
For the record:
1) The gov't does not determine when a recession/depression (there is no difference in economic analysis) occurs. The National Bureau of Economic Research determines "a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." (http://www.nber.org/cycles.html
.) The NBER is a non-partisan organization that has published well renowned books from both conservative and liberal economists.
2) I read Moody's economic analysis department Dismal Scientist
on a regular basis. Over the last 3 years they have consistently stated the exact same thing I have just said. They consistently urged for more stimulus throughout the recession -- in particular government purchases over tax cuts (ex: https://www.economy.com/home/login/ds_p ... 1107291339
) The analysis of Moody's is DIRECTLY in opposition to your statements.
3) The government made money off of TARP. The original TARP plan was barely used. After the Obama administration took over Geithner drastically changed Paulson's original plan that was passed by Congress. Even then, it was an insurance policy made by the government to prevent systemic collapse of the financial sector. It was NOT stimulus. All the money (plus a profit) came back to the government.
B.A. Economics, Political Science
President of Economics Society
Member of Federal Reserve Challenge
20 page term paper on TARP for Legislative Process
1.5 hour presentation on the causes of the Great Depression (extremely similar to current recession.)
All the books mentioned above were reviewed by me on Amazon.
Robotclubmember, reading news articles, that don't discuss economic theory, will get you no closer to understanding the underlying phenomena. Please understand this before you go off spouting your supreme understanding of economics.