From the Atlantic: The Zombie Numbers That Rule the U.S. Economy

In 2305 we looked briefly at the budgeting process and will also look at economic policy making soon enough. Both make use of numbers that purport to tell us how the economy is doing - but here's a suggestion that those numbers are misleading.

- Click here for the article:

We act as if they are markers from time immemorial, but in fact they were invented for modern industrial nations after the Depression and World War II and are now seriously outdated.

Take gross domestic product. Derived from formulas set down by the economist Simon Kuznets and others in the 1930s, its limitations have long been recognized, none more eloquently than by Robert F. Kennedy in a famous speech in 1968 when he declared that it measured everything except that which is worth measuring.

GDP treats all output as a positive. When you buy LED lights that obviate the need to spend on incandescent bulbs and reduce energy consumption, GDP goes down and what should be an unmitigated good becomes a statistical negative. If a coal company pollutes a river, the cleanup costs are positive for GDP, as are any health care costs for those harmed.

What’s more, we have also come to assume that with output comes more spending and employment, but factories today are powered by robotics and software, and robots don’t buy more lattes and shoes.

GDP is a good number for a nation that produces lots of stuff made by lots of workers, but for an information economy grounded in services and intellectual property and awash in apps that cost nothing yet enable commerce, it is not up to the task. Nor are many of our indicators. Our trade figures treat an iPhone made—more accurately, assembled—in China with no reference to the intellectual property created by Apple in California.

From the Atlantic: Here Are the 10 Biggest U.S. Cities by GDP—And How They've Grown Since 2009

According to the story, Houston's GDP grew quicker than that of any of the ten largest cities in the nation since the end of the recession.

Here's proof:



But Houston is still in the middle of the pack in total GDP:



Click here for the source of those numbers.

Houston GDP

And why not add data for the local area?

According to the Bureau of Labor Statistics, the GDP for the Houston-Sugarland-Baytown area in 2011 was:

$419 billion.

It's the 5th largest in the nation (behind NYC, LA, Chicago and Washington DC - and just ahead of Dallas)

For detail:

- Houston has fatest growing GDP of large metros.
- BEA: Growth Continues Across the Nation’s Metropolitan Areas.

Texas GDP

Might as well look at Texas' GDP while we are at it:

For 2011: $1.149 trillion. Second to California ($1.7tr)
For detail on the GDP's of all states:

- usgovernmentspending.
- wikipedia.
- "WIDESPREAD ECONOMIC GROWTH ACROSS STATES IN 2011"

US Gross Domestic Product - 2012

For this week's look at the US economy and the budget:
According to the Bureau of Labor Statistics. the US GDP at the end of 2012 was just under $16 trillion - $15.864 trillion.

If you need a refresher on what the GDP is click here. Some of the figure we will be looking at regarding the budget are set in percentages of GDP. It might be helpful to know what that figure is.

For more detail:

- Trading Economics.
- Google Data.
- US economy climbs off the mat.

From the Fiscal Times: 5 Things You Must Know About Our National Debt

This is as good a place as any to get a handle on the national debt, the issues associated and the conflicts over what to do about it and whether it is a pressing economic problem, or simply a political issue.

We will unpack the nature of the debt - what it is exactly - soon enough, but to get a look ahead click here and here. 

We will also later discuss how the debt is incurred. Put simply, the US gets into debt when it needs to sell treasury bonds to pay for items that it is obligated to pay for by law, but that we do not have the tax revenue to pay for. These bonds are offered in the open market at rates determined somewhat by the market (we'll wade into details soon enough). If the market consideres these bonds to be safe, the interest rate is low. If the market considers the bonds to be risky, the interest rate is high because that will guarantee the bonds holders will make money on the bonds even if they might be defaulted.

The question is this: When does the nature of the debt start to convince bond hoders that treasury bonds are risky? What is that level? Can we determine this ahead of time and adopt strategies to deal with it?

The article pooints out that a central dispute right now concerns goals. Should the gal right now be to pay down the debt, or to stabilize it? Democrats prefer the latter, Republicans the former. Much of the controversy right now over budget plans comes down to that dispute. Republicans are more likely to say we are at crisis levels, Democrats are not.

So while there is a shared assumption that excessive debt is not good for the nation and can suffocate the private sector, there seems to be no consensus among economists on what level of debt does so.

Right now the debt is 76% of GDP - which is double the historic rate of 39% of GDP. What debt to GDP ratio pushes the US over the edge? What is the tipping point? Soon after WWII, the debt to GDP ration was around 120%, but was quickly paid down.

The author toys with the problems posed - possibly - when the ratio hits 80% or 90%. We don't really know what the result is because if we cut spending right now when the economy is still struggling. Debt can be caused by a slow economy since it will not create the revenues that allow for the debt to be paid down. this is the argument against austerity. Paying down the debt prematurely can hamstring the economy which leads to greater debt.

The author states that it matter who holds the debt. Some of our debt is held domestically, by Americans. But some is held by foreigners, which creates risks. In Japan, most of their debt is held domestically so their 220% debt to GDP is tolerated. That might not be the case with US debt.

The author concludes by stating that bondholders need to have some level of trust in the ability of elected leaders to handle crises effectively. Stable debt to GDP ratios means nothing if levels of trust are low. 

Did a reduction in Defense Spending lead to a contraction in the economy?

This might end up being a lesson in the danger of quickly cutting spending. It sounds nice, but it has consequences. By the way - most, ok all, of this was stolen from Wonkblog.

The GDP shrank 0.1 % in the last quarter of 2012 even though the private sector grew.

Here's the breakdown in chart form:



And some commentary:

- Yikes! Economy shrank in fourth quarter for the first time since ’09.
- Economy shrinks as federal spending cuts trump private sector’s growth.
- Government is hurting the economy — by spending too little
- GDP Report Is Less Negative Than It Looks

And one more chart that compares the private and public components of ther economy.

Is the American economy is running on empty?

The NYT discusses an economist's allegation that U.S. economic growth is over and the three separate economic revolutions that have fueled the expansion of the American economy are over, and there's little on the horizon to replace it. They also cover criticisms of the thesis.

Innovation has sparked growth in GDP, the author seems dubious that further innovation can do more.

From Slate: The ABCs of GDP

A nice little video - enjoy.

No Double Dip?

The economy grew 2.5% in the third quarter. This is not enough to regain lost jobs, but its positive territory.

Andrew Sullivan links to useful commentary.

NGDP targeting

Something the Fed is considering. It would focus their actions on ensuring a level of GDP growth that would lead to full(er) employment.

Recession impact revised, it was worse than thought

From the NYT:

Data revisions going back to 2003 . . . showed that the 2007-2009 recession was deeper, and the recovery to date weaker, than originally estimated. Indeed, the latest figures show that the nation’s economy is still smaller than it was in 2007, when the Great Recession officially began.

Ranking the Presidents by G.D.P.

From the NYT, a ranking of president since and including Eisenhower based on GDP growth while in office:

They are listed in reverse order of growth.

Barack Obama, 1.2% annual G.D.P. growth rate (previously 1.5%)
George W. Bush, 1.6% (previously 1.7%)
George H.W. Bush, 2.1%
Gerald Ford, 2.2%
Dwight Eisenhower, 2.5%
Richard Nixon, 3.0%
Jimmy Carter, 3.2%
Ronald Reagan, 3.5%
Bill Clinton, 3.8%
Lyndon B. Johnson, 5.0%
John F. Kennedy, 5.4%

Texas = Russia

In GDP anyway.

Do Tax Cuts Stimulate Economic Growth?

The evidence is not conclusive. The last decade had the slowest growth rate since the 1960s, and this was after the Bush tax cuts.