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Consumer Spending, Says Law, and Why Keynes Is Wrong
#1
I realize that I am constantly using Bastiat, and his work on the "Unseen", but this topic here clearly demonstrates the shallow thinking of the Left and their Keynesian dogma. It is easy to see the effect of things, but one must look at the causes if one is to fully appreciate the former, and assign credit where credit if really due.

This essay, Consumer Spending Doesn’t Drive the Economy, pretty much tells it like it really is. Both Bastiat and Says are two Frenchmen who deserve far more credit than is given them.

Quote:Consumer Spending Doesn’t Drive the Economy
Investment does.

by Mark Skousen

Posted May 17, 2010


“Consumer spending makes up more than 70 percent of the economy, and it usually drives growth during economic recoveries.”

Quote:–“Consumers Give Boost to Economy,” New York Times, May 1

Every quarter, when the government releases its latest GDP figures, we hear the familiar refrain:

“What the consumer does is vital for economic growth.”

“If the consumer starts saving and stops spending, we’re in big trouble.”

“Consumer spending accounts for 70 percent of the economy.”


The latter “fact” is repeated regularly in the news reports from the Associated Press, the Wall Street Journal, and the New York Times.

The truth is that consumer spending does not account for 70 percent of economic activity and is not the mainstay of the U. S. economy. Investment is! Business spending on capital goods, new technology, entrepreneurship, and productivity are more significant than consumer spending in sustaining the economy and a higher standard of living. In the business cycle, production and investment lead the economy into and out of a recession; retail demand is the most stable component of economic activity.

Granted, personal consumption expenditures represent 70 percent of gross domestic product, but journalists should know from Econ 101 that GDP only measures the value of final output. It deliberately leaves out a big chunk of the economy — intermediate production or goods-in-process at the commodity, manufacturing, and wholesale stages — to avoid double counting. I calculated total spending (sales or receipts) in the economy at all stages to be more than double GDP (using gross business receipts compiled annually by the IRS). By this measure — which I have dubbed gross domestic expenditures, or GDE — consumption represents only about 30 percent of the economy, while business investment (including intermediate output) represents over 50 percent.

Thus the truth is just the opposite: Consumer spending is the effect, not the cause, of a productive healthy economy.

The Importance of Say’s Law

This truth prevails in the marketplace: It’s supply — not demand — that drives the economy. Savings, productivity, and technological advances are the keys to economic growth. This principle was discovered and developed by the brilliant French economist Jean-Baptiste Say in the early nineteenth century and is known as Say’s law. In fact, he invented the word “entrepreneur” to describe the primary catalyst of economic performance.

Is retail sales a leading economic indicator? Each month the Conference Board releases its Leading Economic Indicators for the United States and nine other countries. The ten U.S. leading indicators are:

-manufacturers’ new orders
-building permits
-unemployment claims
-average weekly manufacturing hours
-real money supply
-stock prices
-the yield curve
-new orders for nondefense capital goods
-vender performance
-index of consumer expectations

As you can see, almost all of the indicators are linked to the early stages of production and business activity.

Misleading Consumer Confidence Index

What about the Consumer Confidence Index that the media highlights every month? It turns out that the title is misleading. The questions asked consumers are more about business conditions than spending attitudes. Here are the questions consumers are asked to determine their “expectations”:

1. Are current business conditions good, bad, or normal?
2. Do you expect business conditions to be good, bad, or normal over the next six months?
3. Are jobs currently plentiful, not so plentiful, or hard to get?
4. Do you expect jobs to be more plentiful, not so plentiful, or hard to get over the next six months?
5. Do you plan to buy a new/used automobile/home/major appliance [note: these are all durable consumer goods, not unlike durable capital goods] within the next six months?
6.
Are you planning a U.S. or foreign vacation within the next six months?

In other words, the much-touted “consumer” confidence index is more a forecast by consumers for business, employment, and durable goods than “retail sales” and consumer spending. It does not ask any questions about food, clothing, entertainment, and other short-term buying, because these expenditures seldom change from month to month.

The reality is that business and investment spending are the true leading indicators of the economy and the stock market. If you want to know where the stock market is headed, forget about consumer spending and retail sales figures. Look to manufacturing, capital expenditures, corporate profits, and productivity gains.

Beware of Keynes’s Law

The reason we hear so much about the consumer is because the media and political pundits still live under the spell of Keynesian economics, which teaches that demand creates supply. Keynes’s law is just the opposite of Say’s law (supply creates demand). According to Keynesians, consumer spending drives the economy and saving is bad when the economy is in a short-term contraction.

In reality, increased savings can actually stimulate the economy, even if consumer spending is anemic. A recent study by the St. Louis Fed concluded that in the short run, “a higher saving rate in the current quarter is associated with faster (not slower) economic growth in the current and next few quarters” (Daniel L. Thornton, “Personal Saving and Economic Growth,” Economic Synopses, St. Louis Fed, December 17, 2009).

How is this possible? When people save more, interest rates fall and business can afford to replace their old equipment with new tools, spend more on research and development, or develop new production processes. So while consumer spending may stay low, business spending can pick up the slack. Remember, in a dynamic economy the decision by businesses to spend more investment funds and hire more workers is a function of both current consumer demand and future consumer demand. And don’t forget, during a recession corporate profits often recover first, without an increase in customer demand, because companies can boost profits by cutting costs and downsizing.

In the long run new business strategies and spending patterns increase productivity and lower prices to consumers, which in turns means the consumers’ purchasing power increases. As the St. Louis Fed concludes, “A higher saving rate does mean less consumption [in the short run], but it could also result in more capital investment and, ultimately, a higher rate of economic growth…. [T]he growth rate of real GDP has been higher on average when the personal saving rate is rising than when it is falling.”

Granted, the ultimate function of business activity and entrepreneurship is to fulfill the needs of consumers, and the most successful firms are those that satisfy their customers. But more important, who discovers the new, improved products that consumers desire? Who is the catalyst that determines the quantity, quality, and variety of goods and services? Did the consumer come up with the idea of personal computers, SUVs, fax machines, cell phones, the Internet, and the iPhone? No, these technological breakthroughs came from the genius of creative entrepreneurs and the savers/capitalists who funded their inventions.

Mark Skousen is an American economist, investment analyst, newsletter editor, college professor and author of more than 25 non-fiction books.
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#2
I disagree with the idea that supply drives consumption. Of course a good can not be consumed unless someone is making it, but the signal to produce the good is the demand signal. The demand signal spurs producers to make more or less of something. People don't produce something for which there is no demand. If you increase demand, suppliers WILL come to meet the demand. The profit motive at work. If you increase supply, demand may or may not come. No one ever produces something simply because they are able. They produce something for which they believe there is demand. The author has it backwards.

Also, this quote
"Did the consumer come up with the idea of personal computers, SUVs, fax machines, cell phones, the Internet, and the iPhone? No, these technological breakthroughs came from the genius of creative entrepreneurs and the savers/capitalists who funded their inventions."

These inventors were trying to create something for which there was already demand. No one knew what an iPhone was, but they knew they wanted a small, easy to use, multimedia communications device. People were already buying things like that. There was already demand for all of those things. People had a need and suppliers invent solutions to meet those needs because of the motive to make a profit.
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#3
(08-15-2011, 01:27 PM)WickedLou9 Wrote: I disagree with the idea that supply drives consumption. Of course a good can not be consumed unless someone is making it, but the signal to produce the good is the demand signal. The demand signal spurs producers to make more or less of something. People don't produce something for which there is no demand. If you increase demand, suppliers WILL come to meet the demand. The profit motive at work. If you increase supply, demand may or may not come. No one ever produces something simply because they are able. They produce something for which they believe there is demand. The author has it backwards.

Also, this quote
"Did the consumer come up with the idea of personal computers, SUVs, fax machines, cell phones, the Internet, and the iPhone? No, these technological breakthroughs came from the genius of creative entrepreneurs and the savers/capitalists who funded their inventions."

These inventors were trying to create something for which there was already demand. No one knew what an iPhone was, but they knew they wanted a small, easy to use, multimedia communications device. People were already buying things like that. There was already demand for all of those things. People had a need and suppliers invent solutions to meet those needs because of the motive to make a profit.

Lou, you are mixing apples with oranges. A general, unspecific demand is different from a pointed one. Just because business people wanted a better accounting/calculating device, or communication device, does not mean they had a computer in mind.

I believe you are mixing up coincidence with correlation here.

I, and millions of other citizens, have been demanding a cheap and easy way to get into space, and colonize the moon, and mars. And yet I don't see our demands being met yet. I'm still waiting on that space elevator, so why isn't it in operation yet?

But also, the thesis is that investment comes before consumption. If someone does not invest in production, we can forget about consumption.
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#4
This guy mumbles and jumbles until he finally gets to a point. He could have just said that although consumer spending is 70% of the economy, the other 30% follows business cycles and is the more variable part. This crap about GDE makes it sound like businesses can create an economic recovery by filling their warehouses with goods people don't want to buy. In fact, in a way, that's sort of Keynesian.

If this guy's such an expert on Keynes, he should know that it's a theory of economic recessions, not normal economic activity. The fact that he doesn't make the distinction (for instance, with the Thornton paper) is a pretty fundamental error.
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#5
(08-15-2011, 02:43 PM)b5d Wrote: This guy mumbles and jumbles until he finally gets to a point. He could have just said that although consumer spending is 70% of the economy, the other 30% follows business cycles and is the more variable part. This crap about GDE makes it sound like businesses can create an economic recovery by filling their warehouses with goods people don't want to buy. In fact, in a way, that's sort of Keynesian.

If this guy's such an expert on Keynes, he should know that it's a theory of economic recessions, not normal economic activity. The fact that he doesn't make the distinction (for instance, with the Thornton paper) is a pretty fundamental error.

He did NOT say that at all, by 'mumbles and jumbles'. He stated:

Quote:The truth is that consumer spending does not account for 70 percent of economic activity and is not the mainstay of the U. S. economy. Investment is! Business spending on capital goods, new technology, entrepreneurship, and productivity are more significant than consumer spending in sustaining the economy and a higher standard of living. In the business cycle, production and investment lead the economy into and out of a recession; retail demand is the most stable component of economic activity.

Perhaps you should start realizing that attempting to Speed Read is not good for understanding what is written within articles. Clearly you are not taking the time to digest anything you have been led to believe false.

Try rereading the article. Some of you will do anything to put the ass before the appetite.

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#6
Got it now. By "economic growth," he means "demand for money." GDE (which is where he's getting the 30% figure for personal consumption in the economy) measures all transactions, including unfinished goods. Unfinished goods are not 'economic,' but transactions on unfinished goods do demand money. So it's a good measure to use to determine money supply. However, unless you're a fed chairman, unfinished goods don't have anything to do with an economic recovery.

That's something I notice the Austrians doing a lot - using weird definitions so nobody can understand what they're saying. If the author had just said, "Consumer Spending Doesn’t Drive Money Demand," then we all would have known what he was talking about immediately, and I wouldn't have had to read it twice.
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#7
I don't really consider myself an Austrian, and I 'got it' immediately.

I just consider myself a Classical Economics person.
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#8
Let me give a few examples of Say's Law.

The iPhone, the iPad, the personal computer, mobile phones, MRI machines.

These vast success of these could not have been the "demand" of the consumer because the average consumer had no idea such things were possible.

Other examples: Marketers are always introducing "new products", sometimes perhaps to fit a perceived want (i.e. demand) but many times just to see if they can create a demand for their new product.

Our lives are rife with Say's Law examples if you think about it.

Now there is a huge demand for new antibiotics. Yet drug companies are not putting this high on their priority list (due to FDA strictness?). This is an example where demand does not create supply.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#9
Jean Baptiste Say was correct in the idea that one can't prosper by just hoarding one's profit. Also, in the idea that without a supply, then demand falls on its face. The argument between Keynesian law and Say's Law is pretty simple. One is magic, and one uses real world metrics.
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#10
(08-15-2011, 06:15 PM)jt Wrote: Let me give a few examples of Say's Law.

The iPhone, the iPad, the personal computer, mobile phones, MRI machines.

These vast success of these could not have been the "demand" of the consumer because the average consumer had no idea such things were possible.

Other examples: Marketers are always introducing "new products", sometimes perhaps to fit a perceived want (i.e. demand) but many times just to see if they can create a demand for their new product.

Our lives are rife with Say's Law examples if you think about it.

Now there is a huge demand for new antibiotics. Yet drug companies are not putting this high on their priority list (due to FDA strictness?). This is an example where demand does not create supply.

I completely disagree. The brand name of such devices is not important. The demand was for something with the capabilities of those things. If I invented a battery powered battery changer no one would buy it. Simply inventing something doesn't mean anything. Simply inventing a device doesn't mean that there will be demand for it. The generalized demand for certain capabilities is what drives people to innovate. The motive to serve unmet demand and earn a profit is what signals producers to supply something. The question is always " what is going to sell?" When you ask that question you are asking "what is there demand for?". If you produce an electric vehicle in 1999, you fail because there is no demand. No one wants a slow car that has a 80 mile range because at that time gas was 99 cents a gallon. Guess what? No one made electric cars. Not because we couldn't but because there was no demand. Demand always always always comes first. If people simply produced anything they felt like without regard for what the marketplace is demanding, there would be alot of useless junk on the market and a lot of bankrupt producers.

To address John's post about space flight, guess what? We have it. Not surprisingly, it's very very expensive, but if you have a million bucks you can hitch a ride on a Russian rocket. There is demand for affordable space flight, yes. And if it were possible to provide it someone would. Right now the technology doesn't exist. But people like Richard Branson are trying very hard to achieve just that. Not because they feel like it. Because they think there is demand for it. They think they can sell it.

Yes there are strange deviations from this due to marketing efforts. See the pet rock. These things are fads however and are not sustainable. People buy into marketing hype, but eventually figure out that the thing is useless and it goes away. Items for which there is legitimate demand, those things have staying power. Affordable cars, communication, entertainment, etc.
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#11
(08-15-2011, 06:22 PM)WmLambert Wrote: Jean Baptiste Say was correct in the idea that one can't prosper by just hoarding one's profit. Also, in the idea that without a supply, then demand falls on its face. The argument between Keynesian law and Say's Law is pretty simple. One is magic, and one uses real world metrics.

How do you figure? Demand can exist without supply. For how long did people demand air travel? Probably for as long as man could gaze at a bird and watch it fly away. 10,000 years? 50,000 years? How long can supply exist without demand? 5 minutes? Only for as long as a foolish persons money will last. If there is no demand for something, you can only supply it for as long as it takes for you to run out of capital.
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#12
You're stretching definitions. A demand to purchase a product differs from nebulous demand that supports a wish-list. A demand can be hunger - and any numbers of purchases can alleviate that need. However if you want See's chocolate, but it is not available in your state - you may buy some other brand to satisfy your craving - but what you get is not your first preference.

The demand is there, but unfulfilled. Perhaps Hershey will sell some candy - but if See's came into this marketplace, the supply might cause triple the sales. There is unfocused demand and there is supply. Provide what a person wants and that person will buy. If the exact thing is not available, the purchaser looks for the next best thing, but not with the same alacrity or amount of cash.
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#13
(08-16-2011, 04:11 PM)WmLambert Wrote: You're stretching definitions. A demand to purchase a product differs from nebulous demand that supports a wish-list. A demand can be hunger - and any numbers of purchases can alleviate that need. However if you want See's chocolate, but it is not available in your state - you may buy some other brand to satisfy your craving - but what you get is not your first preference.

The demand is there, but unfulfilled. Perhaps Hershey will sell some candy - but if See's came into this marketplace, the supply might cause triple the sales. There is unfocused demand and there is supply. Provide what a person wants and that person will buy. If the exact thing is not available, the purchaser looks for the next best thing, but not with the same alacrity or amount of cash.

I would argue that this "nebulous" demand is what is important. It creates the industry. Demand for transportation lead to cars, trains, boats, etc. The generalized consumer demand encouraged people to enter the market to provide a solution. Whether that solution was a Ford model T , or a wright brothers airplane, or a bicycle..it doesn't matter. The demand for transportation created entire industries. Personal preference for specific brands and models isn't important . Yes, I might have a personal preference for a Volkswagen, and I couldn't have that preference unless someone made a Volkswagen, but there would still be market demand for transportation even without a VW. The fact that demand for transportation exists drives people to want to capture a portion of that market demand. They differentiate, they specialize, they target niche markets, etc. But always they look for where there is demand and they try and meet it. That is the only sustainable model.

It also depends on what sort of market this is and what sort of model it follows. We are sort of getting into micro concepts here, but there are different models of markets and they all behave differently. (oligopolies, perfect competition, etc)

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#14
WLou9 Wrote:The motive to serve unmet demand and earn a profit is what signals producers to supply something.

That is quite plausible, and sometimes, but not always happen. Or perhaps, it is just your way of saying "if there was not an unseen demand, then the cell phone (for example) would not have taken off". That seems a bit circular to me.

Of course, as I tried to point out, inventors and producers are always trying to find a new wrinkle to sell stuff in order to either create demand (Say's Law) or fulfill a hidden demand (Lou's Law). If they were sure that their product would satisfy an unmet demand, then every new item would be an instant profit maker. Obviously this is not the case, therefore producers do not always make things to satisfy a demand.

Lots of this kind of argument seems a bit like the Chicken and Egg paradox. "Did the supply cause the demand or the demand cause the supply?".

More examples: There were vast agricultural surpluses in the years following WWII. This supply created no demand (anti-Say). Rather, it was subsidized by the US government to keep farmers in business or shipped to India to prevent mass starvation.

Car manufacturers often overproduce. They have to create demand by offering incentives or lowering prices. That was the bane of the industry until 2008 or thereabouts.

Homes now are not selling. There is a vast oversupply, so according to Say, home sales should be booming.

The above three examples are of increased supply in a saturated market, which creates no new demand. Obviously there are other factors too.

There is a demand for jobs now, so according to Lou's Law (demand creates supply), there should be many being offered.

I would appreciate it if you would try to think of examples of supply and demand situations and opine about "which came first" the supply or the demand. Without examples, one can generalize forever. I think things are less simple than Say imagined.



Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#15
Let me give a different sort of example, just to make this more interesting. Practically every famine in modern history has taken place despite the availability of food. Sometimes famine zones have even exported food. The reason? People don't have enough money to buy the food - since not everybody is a farmer.
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#16
(08-16-2011, 06:15 PM)jt Wrote:
WLou9 Wrote:The motive to serve unmet demand and earn a profit is what signals producers to supply something.

That is quite plausible, and sometimes, but not always happen. Or perhaps, it is just your way of saying "if there was not an unseen demand, then the cell phone (for example) would not have taken off". That seems a bit circular to me.

Of course, as I tried to point out, inventors and producers are always trying to find a new wrinkle to sell stuff in order to either create demand (Say's Law) or fulfill a hidden demand (Lou's Law). If they were sure that their product would satisfy an unmet demand, then every new item would be an instant profit maker. Obviously this is not the case, therefore producers do not always make things to satisfy a demand.

Lots of this kind of argument seems a bit like the Chicken and Egg paradox. "Did the supply cause the demand or the demand cause the supply?".

More examples: There were vast agricultural surpluses in the years following WWII. This supply created no demand (anti-Say). Rather, it was subsidized by the US government to keep farmers in business or shipped to India to prevent mass starvation.

Car manufacturers often overproduce. They have to create demand by offering incentives or lowering prices. That was the bane of the industry until 2008 or thereabouts.

Homes now are not selling. There is a vast oversupply, so according to Say, home sales should be booming.

The above three examples are of increased supply in a saturated market, which creates no new demand. Obviously there are other factors too.

There is a demand for jobs now, so according to Lou's Law (demand creates supply), there should be many being offered.

I would appreciate it if you would try to think of examples of supply and demand situations and opine about "which came first" the supply or the demand. Without examples, one can generalize forever. I think things are less simple than Say imagined.


I agree mostly. About every item being a profit maker: Yes, it's not really the case and I don't think that is a contradiction. Producers and inventors are not able to see the future. They make mistakes. They misinterpret trends. They bring products to market at the wrong time or with the wrong ingredients. It's trial and error. No one can read the minds of all 300 million people in the country and know what they all want. The people who seem to be good at that we call visionaries. People like Steve Jobs who see every opportunity in the market and nail it.
I think it's a mistake to look at it at this detailed a level. You have to look at the collection of all of this sort of activity. There are thousands of people trying to figure out what the market will bear. What will sell. They try and fail many many times. They try and make something and find that there is no demand and they fail. Then they learn, revise, try again. Sometimes people will get it right sometimes they wont. The collection of suppliers are trying to find demand that they can meet and earn a profit.

Yes. I mean you do need both or you don't have a market anyway, but the direction of flow if you will is supply trying to find demand. Demand exists, supply tries to find it.

The demand for jobs thing. I think you may be looking at it backwards. This is my read on it, but I'm not the only one saying this. There has been a fundamental shift in employment. The people supplying labor ( they are suppliers too after all), are not offering what the market is demanding. The labor market needs highly skilled people who are specialized in certain things. The people who are out of work are supplying skills and experience that are no longer in demand. Thus they are out of work. We no longer need people who can manufacture things, atleast not to the same degree that we did before. Those jobs have gone to other countries. Even some skilled jobs like programming and IT support have gone overseas.
The company I work for has several dozen open positions. We can't find people to fill them. People are applying but they aren't the right people. They are supplying the wrong product if you will.
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#17
The author of the original article is missing what people in supply-chain management (like me) know as the bullwhip effect. Although demand looks flat from a macro perspective, in reality it isn't. Retailers and every other step along supply-chain perform demand forecasting. If they are wrong, if consumers don't demand as much as these firms expected, that leads to significant problems up the supply-chain. A very small change in demand can work its way back up the supply-chain, all the way to the producer of raw materials. At each point, the effects of the small change in demand is amplified, leading to excess inventories (Funny, I feel like I've posted this before). Inventories are part of the "I" component of GDP.

While the author is correct in saying that savings (private domestic and private foreign), technological changes, and productivity improvements are key to growth, this is in the long-run. In the short run, because I contains inventories and intermediate goods, I stability is dependent on D being very close to what is expected.

http://en.wikipedia.org/wiki/Bullwhip_effect

It needs to be pointed out, however, that this isn't what is going on today. We are in a period of long-run unemployment. This suggests something structural, not cyclical.
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#18
(08-17-2011, 01:36 PM)Brooklyn Wrote: The author of the original article is missing what people in supply-chain management (like me) know as the bullwhip effect. Although demand looks flat from a macro perspective, in reality it isn't. Retailers and every other step along supply-chain perform demand forecasting. If they are wrong, if consumers don't demand as much as these firms expected, that leads to significant problems up the supply-chain. A very small change in demand can work its way back up the supply-chain, all the way to the producer of raw materials. At each point, the effects of the small change in demand is amplified, leading to excess inventories (Funny, I feel like I've posted this before). Inventories are part of the "I" component of GDP.

While the author is correct in saying that savings (private domestic and private foreign), technological changes, and productivity improvements are key to growth, this is in the long-run. In the short run, because I contains inventories and intermediate goods, I stability is dependent on D being very close to what is expected.

http://en.wikipedia.org/wiki/Bullwhip_effect

It needs to be pointed out, however, that this isn't what is going on today. We are in a period of long-run unemployment. This suggests something structural, not cyclical.

It's unfortunate that our federal reserve and central bankers are still saying that the current unemployment problem is cyclical and not structural. I think it's causing them to act wrongly. That is if they actually believe it. maybe they know it's structural and just don't want to say it for fear of creating uncertainty in the markets.
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#19
WLou9 Wrote:It's unfortunate that our federal reserve and central bankers are still saying that the current unemployment problem is cyclical and not structural. I think it's causing them to act wrongly. That is if they actually believe it. maybe they know it's structural and just don't want to say it for fear of creating uncertainty in the markets.

Or for fear of insulting the political powers that be.

I agree that the labor market has substantially changed. For example, nearly all the lifting and toting jobs are gone. The irony is that some folks think the bell curve of intelligence has changed and propose that we send nearly all kids to college, when the plain fact is that vast numbers of kids can't or won't finish high school. Unionization, the high cost of employing workers (taxes, restrictions) and abysmally cheap labor have boosted automated factories and undercut those in this country who can or will do little more than lift and tote. So, the US has some deep structural problems with employment.

However, most of this is not new, it has been extant a decade or two. It might not be so bad to go back to 2000 or so, when employment was decent and these problems still existed.
Jefferson: I place economy among the first and important virtues, and public debt as the greatest of dangers. To preserve our independence, we must not let our rulers load us with perpetual debt. We must make our choice between economy and liberty, or profusion and servitude. If we can prevent the government from wasting the labors of the people under the pretense of caring for them, they will be happy.
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#20
(08-17-2011, 01:36 PM)Brooklyn Wrote: Inventories are part of the "I" component of GDP.
I is investment...inventories are generally not counted in GDP, which only measures finished goods.

(08-17-2011, 04:59 PM)jt Wrote: Or for fear of insulting the political powers that be.
Economic policymakers don't have anything to fear from the political powers...and that's by design. Now, some on the right are trying to take that independence away.

Quote:I agree that the labor market has substantially changed. ...However, most of this is not new, it has been extant a decade or two.
All this kerfufle about "American exceptionalism" seems pretty lame, in view of that fact. What's wrong with America's economy? Its politicians are failing to tackle the country’s real problems. Believe it or not, they could learn from Europe
The Economist Wrote:All this means that grappling with entrenched joblessness deserves to be far higher on America’s policy agenda. Unfortunately, the few (leftish) politicians who acknowledge the problem tend to have misguided solutions, such as trade barriers or industrial policy to prop up yesterday’s jobs or to spot tomorrow’s. That won’t work: government has a terrible record at picking winners. Instead, America needs to get its macro-medicine right, in particular by committing itself to medium-term fiscal and monetary stability without excessive short-term tightening. But it also needs job-market reforms, from streamlining and upgrading training to increasing employers’ incentives to hire the low-skilled. And there, strange as it may seem, America could learn from Europe: the Netherlands, for instance, is a good model for how to overhaul disability insurance. Stemming the decline in low-skilled men’s work will also demand more education reform to boost skills, as well as a saner approach to drugs and imprisonment.
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