AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (82 comments)

  1. Max Planck

    Gee. What will they think of next?

  2. I wonder what the price difference in Christmas trees are between 2000 and 2012.
    I’m sure they’re lower!

    Shocking that high tech prices are way lower.
    HooCouldANode

    1. Again, Mr Lazy Ass can’t be bothered to do the comparison he wants done and bitches that Mark didn’t do it for him. Shocker.

      1. Poor Ken, doesn’t even notice that he has shot himself down in flames – again!

        Can’t show that I’m incorrect in any way, so advertises his epic fail (in having zero answer to the obvious cherry picking by Dr. Perry) by spewing yet another personal attack, proving he knows I’m right, yet again.

        1. I wasn’t trying to show you were incorrect about anything. I was just pointing out what a lazy ass you are.

          1. Ken, I’m sure you’re not surprised that people who covet the fruits of your labor also desire the labor itself.

          2. Cool!

            Another personal attack, and yet more evidence of a fail and admission that I’m correct.

          3. flake,

            You said nothing about which to be correct. There is no mounting evidence that you were correct about anything.

        2. I’m sure you’re correct, Christmas tree prices are lower in 2012 so what exactly is it that anyone has failed to show? We all agree with you.

    2. I don’t know about Christmas trees, but a gallon of milk cost me $1.92 @ WalMart today. What did a gallon cost in 2000? Pretty sure it was much higher, and I don’t consider milk high tech.

      1. a gallon of milk cost me $1.92 @ WalMart today“…

        Well mike that’s a big price difference for what I’m paying a gallon of milk in the St. Louis, Mo area which is $3.99/gal…

        1. Same here, it sounds like a sale price or traffic builder. I pay around $3.50/gallon now.

          With just a simple and very quick search, which no one seems capable of when something challenges their fixed ideas, I found that milk prices were at an all time record high in 2011.

          http://www.hoards.com/sites/default/files/Class%20III_price_table.jpg

          And then there’s gov’t support too, without which milk would probably be over $8/gallon.

          But everything is beautiful since digital cameras and computers are a great deal, while oil went from about $20 to over $100 and gasoline went from under $1.25 to about $3.50 (and yes, it costs more in hours or work too).

          1. A simple and quick search shows that once again you are totally wrong. Here’s a link to milk prices in 2000.
            http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELDEV3023057
            The yearly average was $2.88. Using the CPI inflation calculator at
            http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=2.89&year1=2000&year2=2012
            and converting to 2012 dollars the price would be $3.86 or $.36 more than what you say you’re paying. But I can buy a gallon of milk at Walmart, Sams, Costco or Target for $1.99 today which would make milk an even bigger bargain.

            Read this is see why government price supports could double the price of milk.
            http://www.dailyfinance.com/2012/12/21/politics-gone-sour-why-the-price-of-milk-might-soon-double/

          2. Wrong again, milk breath. Try and actually read it this timer.

            I found that milk prices were at an all time record high in 2011.
            http://www.hoards.com/sites/default/files/Class%20III_price_table.jpg

            Too funny about your $1.99, anecdotal evidence dogs can’t hunt. And just because I bought at around $3.50 doesn’t mean that average milk prices here are $3.50 – they’re over $4, spin boy.

            You lose.

          3. Well sorry, but no. if you’re going to compare prices you have to make a valid comparison. You compared wholesale to retail and retail is what this discussion is about. I really don’t care what the store paid, only what I paid and I paid less than in 2000. Therefore milk prices were lower. Additionally milk prices were at an all time wholesale high but have been trending lower and are now down almost 25% from that high.

            If you had bothered to read the last link I posted you would have seen that high milk prices are directly due to government interference in the milk market.

  3. To give another example I bought a PC in 1993 and it had 500 mb of disk and 16 mb of memory for 5k (including monitor) I just bought a new desktop with 8 gb of memory and 1tb of disk for 644 (including tax) add about 140 for the monitor, and you get about 780. For a machine with 500x the memory and 2000x the disk space. (the 1993 machine was a gateway btw).
    Of course part of the reason disk space has expanded is the demise of film cameras, Kodak has now essentially dropped out of the consumer slide film business for example.

    1. Our first computer was a Radio Shack 425 with a 170 Mg hard drive. It cost just at $4,000.00 in about 1987 or 88. It had a whopping 2000 Baud modem to which allowed me to connect to the Internet. Not that there was much to do and nothing to see back then. According to the Inflation Calculator that would be $7487.00 now.

  4. Jon Murphy

    It’s amazing what a free market can do, no?

    Here is something else for consideration.

    1. Of course – sometimes.

    2. Very good example jon

      My first electronic mass storage device in 1981 was the 10MB monster drive for $3400 via mail order…

      I had to wait almost a month for it…

      Yesterday I ran down to the local Walgreens and picked up a 32 Gig Duracell brand SD card for $70

  5. Your welcome.

    Sorry, a little ego here. I’m in the semiconductor industry, and myself and many many others have been working hard to keep on Moore’s Law. It ain’t easy printing features (transistor gates) that are 20nm wide.

    That aside, I like how economists think about specialization and exchange. These days there is very little I need to know about how a transistor works, or how a $20 million ASML scanner manages to move the stage at a meter or more per second and somehow maintain 5nm overlay to the previous layer, and so on. I concentrate on using my skills (mathematical modeling, programming) to come up with better models that allow other engineers to predict or decipher problems in the chip manufacturing process. I specialize in this narrow area and trade for most other services/items in my life. Very neat.

    1. The interesting thing about Moore’s Law is that it seems to be true regardless of how dumb public policy is. The bad news is that it can’t be sped up by good public policy, but that’s not such bad news since we so rarely find ourselves in the presence of good policy anyway. Technology will save us from the worse consequences of the massive drag imposed on us by politicians and that is something to delight in.

  6. It is really a surprise that Mr. Perry really feels that any of his inflammatory armchair economists who follow this blog even deserve a response to their request. Let me be the first to say THANK YOU for answering the questions that the lazy ones amongst us fling at you.

    Despite the useless, incessant bickering, I would like to second the notion that a comparison of a less technology involved market such as Christmas trees might be interesting. I am curious if the market has been able to improve people’s purchasing power for Christmas trees (or anything conceptually relatable) over the years or if lately, these non technology related markets may have been stifled by regulations or economic downturns or whatever.

  7. Thank you on the Christmas tree issue, or other similar ones.

    You or others may call it bickering or useless, but other valid opinions and facts exist besides the ones that Dr Perry posts.

    Although I despair sometimes about how much more emotionally hot and even combative many areas have become since 2007 or so, it’s still my belief that this is mostly a free country and that when I see what I believe is uneven commentary or partial facts, I can respond – and that sarcasm and factual issues are still allowed.

    1. When do you plan on presenting any factual issues?

      Have you ever noticed that the debate on all issues becomes more hot and combative as government insinuates itself into more and more trivial aspects of everyday life?

      1. It’s an incontrovertible fact that Dr Perry is extremely selective and only posts good news. Deal with it and acknowledge it or not – your choice.

        You may also foam at the mouth and prove that all prices everywhere and anywhere are lower since 2000 – it is also available as one of many options.

        *duh* on government, and lots more.

        1. It’s also an incontrovertible fact that you are unwilling or unable to to present any information to back your assertions.

          1. Professor Perry has asserted that, overall, we are much richer as a whole society now than we’ve ever been and has presented anecdotes that support his assertions. Others have also asserted that the products and services which haven’t seen such declines in cost are those most heavily regulated.

            There may be instances which contradict these assertions, but you have yet to present even one. Regardless, pointing to an exception to the rule does not disprove the assertion that we are better off now than we’ve ever been.

            It is plausible that the cost of health care has risen dramatically since 1959, and that the dramatic decline in the cost of other goods and services has more than offset that rise.

          2. You Go Troll Boy!

            Go find more than one or two Dr Perry posts that aren’t nothing but optimism or evidence selective bias, and then beg for forgiveness.

            Go find the link to CPI corrected housing prices which proves *zero housing recovery* for another one, and then beg for forgiveness – again.

            You’re funny, thanks for the grins.

          3. As I’ve posted numerous times (get a new prescription for your glasses if needed), there’s no question we’re better off than the 1950s in many or most areas.

            It’s since 2000 that’s the question, and to use one of the highest tech gadgets in the most productive sectors of the economy to try and prove we’re better off is, as proven, cherry picking.

            Or perhaps you haven’t heard of the 100s of things like huge drops in net worth in the US? (yes, that’s sarcasm)

            And you know I’m right about many other items like Christmas trees, as again proven by nothing but personal attacks as in “lazy ass” and of course a 100% failure to show that they’re cheaper since 2000.

          4. And another, go find Waldo’s chart proving that gasoline has gone WAY up in price per the actual average hourly earnings in the US in the last few years.

            It just plain ain’t all peaches and cream.

          5. And one more – go look up the price differences for the 12 days of Christmas items between 2000 and 2012.

            They’ve gone up just over 6% in the last year, hugely over double the offishul CPI measure.

            Or don’t look them up via a simple search engine query, and be sure to keep calling me lazy too.

          6. It’s 2000 vs 2012 that is YOUR question. Comparing a boom vs bust in the same generation is only confirming that we’re in a bust. Or are you asserting that we’ll never recover from this downturn? With OblunderCare and other socialist policies in our future, I may be tempted to agree with that.

          7. “It’s 2000 vs 2012 that is YOUR question.”

            Yes, and primarily because of the invalid time period comparisons, in the sense that virtually any 1950s comparison will always look supercalifragilisticexpealidocius. The last decade or so is much more important and relevant than what boils down to ancient history. And ignoring things like oil having 5x’ed since 2000, stocks having lost money since 2000, gasoline having about 3x’ed, socialism being beyond rampant – well, excessive and unjustified optimism or exuberance just doesn’t work for me.

            “… confirming that we’re in a bust. Or are you asserting that we’ll never recover from this downturn?”

            I think you’re the only one I’ve ever read here that has actually admitted clearly that we’re in a bust, although Waldo probably feels that way.

            As far as recovering, unless and until we prosecute and jail all the [censored] scum and psychos and truly fix the banking and financial system and restore real balance to the economy, it ain’t gonna happen.

          8. If I sound excessively exuberant, let me fix that now.

            With the reelection of Oblamebush and the resulting inevetibility of more Regressivism beyond OblunderCare, it’s entirely possible that we’ve already seen our best days. I won’t quibble a bit with you about gas prices – we have a president who wants them even higher. I haven’t been here long enough to decide if Prof Perry is over exuberant or just pointing out that he thinks we’re in a recovery. We may be in a recovery, but I have doubts whether we’ll ever recover to pre-Obama. Too many of his stooges resent that we ever had it so good.

            As far as prosecuting those responsible for this mess, good luck. Most of those responsible were either elected, or appointed by a politician. Watch John Kerry get confirmed as Sec State and see how eager they really are to eat their own.

            BTW: my first post was aimed more at Planck and LarryG, who keep insisting we should compare health care costs then-and-now but are too lazy to do it themselves.

          9. With the reelection of Oblamebush and the resulting inevetibility of more Regressivism beyond OblunderCare, it’s entirely possible that we’ve already seen our best days“…

            Excellent sir!

          10. Fair enough and cool Brotio.

            Flame off.

    2. flakester

      [a]nd that when I see what I believe is uneven commentary or partial facts, I can respond – and that sarcasm and factual issues are still allowed.

      Absolutely. The problem is that sarcasm is really hard to detect on a blog comment section, and since I, for one, have no idea what your views or opinions are, I have no way of knowing when your comment includes sarcasm, so you’re not really communicating your point.

      As to factual issues, It’s not clear what your referring to. I mostly recall your comments as being off-the-wall, vague, and irrelevant. Perhaps you’re trying to be cute, but it’s not working. Maybe your writing style could be improved to better communicate your thoughts if that’s your intent.

      On just this thread you have consistently instructed others to “Go look up..” or “Go find…” this or that, when in fact it’s possible no one else is interested in your particular issue. If you have an argument to make, make it and provide a link to supporting information.

      Your Christmas tree comment is a great example. You asked a question then answered it yourself. If that’s sarcasm, no one can tell. if you are actually interested in making a point about Christmas tree prices, provide that information yourself – don’t just expect others to “go look it up”.

      1. Points taken, and I will try and provide more links… but good grief, the over the top optimism and spin here is almost literally ridiculous.

        As far as the Christmas tree example, it was just the first example that popped into my mind. I probably should have used gold or silver or even the 12 days of Christmas price changes (which I did note later – http://content.pncmc.com/live/pnc/microsite/CPI/2011/index.html) which have skyrocketed since 2000. The 2012 change was about 6% since the chart in the link only covers 1984-2011.

        I’ve covered the many huge and much more important (than digital cameras or computers) price increases and price disasters since 2000 like oil, gas, agricultural commodities, household net worth being close to 2000 values (no wealth increase), etc.

        1. Points taken, and I will try and provide more links… but good grief, the over the top optimism and spin here is almost literally ridiculous.

          You can provide a balancing pessimism if you wish, but you might consider framing it as a rebuttal, including supporting references, not a sarcastic remark that no one understands.

          Keep in mind that most commentators here know the following:

          - There has been, and continues to be, a severe economic downturn from which there may be some signs of slow recovery, made worse than necessary by government meddling. Uncertainty as well as inflationary policy make real commodities more attractive than assets denominated in a fiat currency, so you would expect commodity prices to be higher priced in USD, as your dollars continue to shrink.

          - There was a housing bubble that burst a few years ago, caused by a perfect storm of influences; among them a Fed policy of unnaturally low interest rates for an extended period, misguided government policy encouraging more people to own homes, and the predictable actions of buyers and lenders when given perverse incentives. For most people, the equity in their homes is a major part of their net worth, thus a return to near 2000 values when housing prices crashed.

          – Oil and gas are global commodities, so higher demand world wide from developing nations, even while demand in the US has eased somewhat, keeps those prices high – in addition to the inflationary effect of a shrinking dollar on all commodity prices.

          In addition, the Fed policy of low interest rates has encouraged consumption instead of saving, so it shouldn’t be too surprising that household wealth hasn’t increased.

          Besides all that, it’s not clear why you would select a short 12 year period – one that starts at the peak of a boom and includes a bust – to be alarmed about.

          1. That should read: “…includes 2 busts”.

          2. “Keep in mind that most commentators here know the following:”

            Fair enough again, but it sure isn’t much evident during the time I’ve been here that most feel that way.

            “Besides all that, it’s not clear why you would select a short 12 year period”

            Why not? The period sucks and I see little evidence of real fixes or jail time for the perps and scum who mostly created it.
            And as I’ve said before, it’s even more valid than comparisons from the 50s if for no other reason than it’s far more recent and far more important to today’s messes and trends.

          3. Why not? The period sucks and I see little evidence of real fixes or jail time for the perps and scum who mostly created it.

            And you won’t. Who do you think broke the law? Bush? Greenspan? Bernanke? Obama? Frank? Dodd? Pelosi? Reed? Who do you have in mind?

  8. Last night my friend snapped a 3-D digital photo of me with his Evo phone camera.

    3-D! (I’m getting one. My un-photogenic mug looks much better in 3-D).

    I immediately grabbed my husband’s iphone and ordered a 3-D camera from Amazon for $225. I’m old enough to remember when film cameras were expensive and you had to cart your film to a developer for your much crapier photos to be developed at great expense.

    The world is full of wonderful things.

    1. Merry Christmas, Methinks!

      Can those 3D images be view on other devices like my computer monitor and my apparently now obsolete Droid Razr?

      I know, flakester would tell me to “go look it up”, but I’m a lazy ass, so I’m just asking you for the answer.

      1. Merry Christmas, Ron H.!!!

        I have no idea. The ad says they can be viewed on my 3-D TVs and they can be printed out on special paper that won’t require 3-D glasses to view them in 3-D. I’m pretty sure that as with all relatively new technology, they can’t be viewed in 3-D on many devices. However, at just north of $200, it’s a small price to pay to play with it. If I’m wrong, it’s not an expensive mistake. Besides, I expect the technology to keep getting better and more ubiquitous and I’ll have to replace this camera within 24 months as tech improvements become cheaper.

        I’ll let you know how it goes. But, you know, as a woman, I’ll pay a high price to look less bad in pictures :)!!

        1. Methinks. Thanks. I guess I’ll have to go shopping.

          I don’t hold out much hope of ever looking better, so I’ll just have to find another excuse. The one I use most often is: ” I want it.”

  9. Regardless and seriously – Merry Christmas or Happy Holidays (or whatever is ‘correct’) to one and all!

    1. Merry Christmas

  10. PeakTrader

    Flakester says: “It’s since 2000 that’s the question…”

    Dr Perry showed you an example of real wealth. If you just want paper wealth, move to China.

    The 2001-07 U.S. economic expansion was one of the greatest periods of U.S. prosperity. I’ve stated before:

    Bush inherited the worst stock market crash since the Great Depression and a recession. However, the Bush Administration turned the recession into one of the mildest in U.S. history (which wasn’t a recession based on annual per capita real GDP growth), after the record economic expansion and structural bull market from 1982-00.

    Over a five-year period in the mid-2000s, U.S. corporations had a record 20 consecutive quarters of double-digit earnings growth, two million houses a year were built, 16 million autos per year were sold, U.S. real GDP expanded 3% annually, in spite of 6% annual current account deficits (which subtract from GDP).

    The U.S. economy was most efficient, while Americans stocked-up on real assets and goods, and capital was built-up. It was one of the greatest periods of U.S. prosperity, the fourth longest economic expansion in U.S. history, and in a structural bear market that began in 2000.

    The Bush Administration was adept at minimizing the recession in 2008, including providing a tax cut in early ’08 for the Fed to catch-up easing the money supply, until Lehman failed in Sep ’08, which caused the economy to fall off a cliff. However, appropriate policy adjustments were implemented quickly.

    If Bush could’ve been reelected and had his way, the U.S. would’ve completed a recovery in 2010, and we’d be in a strong disinflationary expansion instead of this on-going depression and “train wreck.”

    Simon Kuznets, the creator of GDP said: “Distinctions must be kept in mind between quantity and quality of growth, between its costs and return, and between the short and the long term. Goals for more growth should specify more growth of what and for what.” And, “The welfare of a nation can scarcely be inferred from a measurement of national income.”

    1. John Dewey

      I agree that the 2001-2007 expansion was one of this nation’s best. But I think you might overemphasize the role of Bush and the federal government.

      As I see it, what the Republicans did after 2001 was pretty much get out of the way. The tax cuts implemented in 2003 certainly helped. But the chief contribution of Republicans was to leave the entrepreneurs and the corporate hired guns alone and let them seek profits – profits gained only by providing better goods and services.

      Of course, leaving free markets alone is no easy task for governments. So perhaps Bush does deserve credit for not doing much.

    2. “Dr Perry showed you an example of real wealth. If you just want paper wealth, move to China.”

      And it was cherry picked, or perhaps you live on a different planet where high tech hasn’t had extremely high productivity.

      You don’t have a clue about wealth in China too, you’re just sucking up to MSM spin or your own prejudices or xenophobia. Just look up how much their average wages have gone up since 2000 for one, against what’s happened in the US. It’s in the China Statistical Yearbook, if you can use a search engine.

      Or maybe you live someplace where housing didn’t crash and is still over 20% below the highs – which means that prices are around 2000 levels. That’s also know as NO change in real wealth. Same with the stock market!

      Having blinders on means you don’t see or admit to anything that doesn’t agree with your fixed ideas or blindered optimism.

      As far as Christmas trees, I didn’t think that anyone with eyes and a memory would even vaguely believe that they’re cheaper now than in 2000 (when quality, height and all other factors are held constant).

      Even the stupid and BS CPI shows substantial inflation since 2000, and little change in earnings.
      Household net worth is hardly different than 2000 levels, again with just a stupid and BS CPI adjustment.

      And a steenking digital camera or a computer having gone down a bunch in price is really something that even vaguely offsets those?????????
      Give me a break!!

      1. For those who are search engine challenged or blinder enabled:
        http://www.stats.gov.cn/tjsj/ndsj/2011/indexeh.htm

        1995 – $5348, 2002 $12,373. WELL over doubled.

        And for those who have a hissy fit and use Foxconn working conditions or similar and try to hammer away, please just ignore the average living conditions and wages before Foxconn employment or even 1995 or 2000 (yes, ignore request is sarcasm) wage base.

        And for those who may say that the wages are overstated, then cut the yearly increases by 25% or 50% or whatever. The average wage increase is still huge!

  11. I agree that we are much richer if you use a long enough time constant. For example I use my childhood 55 some years ago and compare with today. Start with the house, more than 1 bathroom, a machine dishwasher, an automatic washer, not a wringer, cell phones not land lines and if you have a land line more than one extension. Also Air Conditioning, although I lived in In at the time, and now live in Tx but home ac was just coming in Tx in the 1950s. Then look at cars, and compare with back then. (Cars back then did not last as long, and up north rusted out, let alone the issue of infotainment.) Of course as Mark has posted compare home entertainment systems, a record player and a black and white tv with today…
    To make things a bit more stark look at 1900 and assume your family lived on a farm, no electricity no refrigeration, transport was by horse or horse drawn wagon locally or by foot.
    So its a time constant issue and of course the older one gets the easier it is to make longer time comparisons

    1. PeakTrader

      Lyle, you just need to watch an episode of Kojak to see U.S. living standards, labor standards, and environmental standards are much higher today.

      1. Of course having lived thru it makes a difference. I was recalling how my grandparents house build in 1928 had an icebox with an outside door, then in the 1930s the monitor top fridge came in (my Grandfather worked for GE so he got a good price on one). So thats about 80 years for mechanical refrigeration, all be it most units at the time where 5-7 cubic feet in size with no freezer to speak of.

      2. “an episode of Kojak”

        Kojak? Kojak????

        OMG, no wonder you have no clue on China and so many other things! A TV crime serial with staged and carefully selected sets and scenarios, and with an artificial rough tuff cocoa puff persona that sucks lolly pops is how you judge the entire culture and the changes since the 1970s?

        wow

    2. “I agree that we are much richer if you use a long enough time constant.”

      Using a 2000 year time span makes everything look LOTS better than the 1950s! Even better, use 412 CE (fall of Rome) as the starting point, and wowee zowee!!!

      Yes, sarcasm.

  12. PeakTrader

    Flakester, making more false assumptions about people and countries doesn’t prove much.

    And, I guess, you believe the cars, typewriters, smog, etc. of the ’70s were staged.

    I stated before: GDP = Consumption + Investment + Government + Net Exports.

    If you take away China’s investments and net exports, you have consumption and government, and we know consumption is low and malinvestment is high.

    China’s GDP is an illusion. The private sector is small (consumption fell from 45% to 36% of GDP in the past decade). Basically, China is a giant assembly plant.

    What the Chinese do best is corruption, crony capitalism, misallocate resources, cause negative externalities, prevent creativity, create inefficiency, and export much of its GDP.

    Here’s what James Fallows said about China:

    James Fallows studied American history and literature at Harvard, where he was the editor of the daily newspaper, the Harvard Crimson. From 1970 to 1972 Fallows studied economics at Oxford University as a Rhodes scholar.

    January/February 2008

    Through the quarter-century in which China has been opening to world trade, Chinese leaders have deliberately held down living standards for their own people and propped them up in the United States. This is the real meaning of the vast trade surplus—$1.4 trillion and counting, going up by about $1 billion per day—that the Chinese government has mostly parked in U.S. Treasury notes. In effect, every person in the (rich) United States has over the past 10 years or so borrowed about $4,000 from someone in the (poor) People’s Republic of China.

    Any economist will say that Americans have been living better than they should—which is by definition the case when a nation’s total consumption is greater than its total production, as America’s now is. Economists will also point out that, despite the glitter of China’s big cities and the rise of its billionaire class, China’s people have been living far worse than they could. That’s what it means when a nation consumes only half of what it produces, as China does.

    Neither government likes to draw attention to this arrangement, because it has been so convenient on both sides. For China, it has helped the regime guide development in the way it would like—and keep the domestic economy’s growth rate from crossing the thin line that separates “unbelievably fast” from “uncontrollably inflationary.” For America, it has meant cheaper iPods, lower interest rates, reduced mortgage payments, a lighter tax burden. The average cash income for workers in a big factory is about $160 per month. On the farm, it’s a small fraction of that. Most people in China feel they are moving up, but from a very low starting point.

    This is the bargain China has made—rather, the one its leaders have imposed on its people. They’ll keep creating new factory jobs, and thus reduce China’s own social tensions and create opportunities for its rural poor. The Chinese will live better year by year, though not as well as they could. And they’ll be protected from the risk of potentially catastrophic hyperinflation, which might undo what the nation’s decades of growth have built. In exchange, the government will hold much of the nation’s wealth in paper assets in the United States, thereby preventing a run on the dollar, shoring up relations between China and America, and sluicing enough cash back into Americans’ hands to let the spending go on.

    1. John Dewey

      GDP = Consumption + Investment + Government + Net Exports

      is one method of measuring GDP – the expenses methid. As long as everyone understands that it is just a measurement tool, fine. However, no one should ever use this equation to makes statements about relationships between sectors of the economy, or to make predictions about how changes in one of the measured components might impact overall GDP.

      1. PeakTrader

        It’s a consumption function. It can be rearranged, C = Y – I – G – NX.

        A production function is Y = t(L, K, R, E,…X), i.e. output is a function of productivity or technology on labor, capital, raw materials, energy, etc.

        1. John Dewey

          As I remember it, Keynes’ consumption function was:

          C = A + MD

          where

          A is autonomous consumption, the consumption when income is zero

          M is the marginal propensity of consumers to spend

          D is disposable income, or Y – (G -T)

          where Y is income, G is government spending, and T is Trransfer payments

          I don’t think the GDP equation is the same as Keynes’ consumption function. But if you can show me the transformation, perhaps I will believe it.

          1. PeakTrader

            Those are subcomponents of an identity. In the income accounts, measured in dollars, Output = GDP = Income.

          2. John Dewey

            Peak,

            An identity is not the same thing aas a function. If this equation were a function, it would imply that increasing government expenditures would increase GDP. Or, it would imply that reducing imports would increase GDP. But there is no proof that such relationships actually exist. In fact, many economists believe that increasing G will result in misallocation of productive resources to the extent that GDP is reduced. Many economists believe – and evidence supports them – that a reduction of importance is highly correlated with a reduction in GDP.

            Y = C + I + G + nX

            is certainly not a function.

          3. John Dewey

            Economist Stefan Karlsson explains that the national accounting identity says nothing about the relationship between the elements of that identity:

            http://stefanmikarlsson.blogspot.com/2011/02/gdp-accounting-identity-causality.html

          4. John Dewey

            “that a reduction of importance is highly correlated with a reduction in GDP.”

            should be

            “that a reduction of imports is highly correlated with a reduction in GDP.”

        2. John Dewey

          In any case, the equation

          Y = C + I + G + (X – I)

          does not tell us anything about the relationships between the elements on the right side and GDP. It definintely does not “prove” that government spending can increase GDP. The equation says nothing about how government spending will crowd out the private sector. It doesn’t prove that increasing exports can increase GDP, or that higher levels of imports will reduce GDP.

          The expenditures for measuring GDP ….
          Y = C + I + G + (X – M)
          … is simply a measurement tool.

          1. PeakTrader

            So, you believe expansionary fiscal policy has no positive effect on GDP, e.g. through an increase in consumption, and vice versa?

          2. John Dewey

            Peak,

            I definitely believe expansionary fiscal policy has a negative impact on GDP. I don’t know whether that impact is immediate, after 6 months, or after two years.

            I cannot prove that government spending crowds out the private sector. But Keynesians also cannot prove that government spending increases GDP.

            I can say this with confidence: the more the government interferes with factors of production, the lower will be the standad of living of the nation. Communist economies clearly demonstrated the validity of this statement over the past century,

          3. PeakTrader

            “Keynesians also cannot prove that government spending increases GDP.”

            It’s been proven mathematically and empirically. The “fiscal cliff” will reduce GDP.

          4. John Dewey

            “It’s been proven mathematically and empirically.”

            No, it hasn’t.

            “The “fiscal cliff” will reduce GDP.”

            I agree that raising tax rates will have a negative impact on GDP.

          5. PeakTrader

            Cutting spending will have a negative impact on GDP too, e.g. through consumption.

          6. John Dewey

            Peak: “Cutting spending will have a negative impact on GDP too, e.g. through consumption.”

            Also not proven. The theory of a government spending multiplier greater than 1 has been debated and debated, but no proof has been (or can be) offered.

            Robert Barro explains, far better than I can, why government spending does not increase GDP:

            http://online.wsj.com/article/SB123258618204604599.html

          7. PeakTrader

            John Dewey, that’s an assumption, not proof.

          8. PeakTrader

            The Keynesian model is supported by mathematical and empirical proof.

    2. The inconvenient truths of how much better off the average Chinese is during the last 15-20 years (as documented and linked!) as compared to the US socialist paradise and haven for scum bankers and politicians is so incontrovertible that you (as expected) completely avoided it.

      Whether “China’s GDP is an illusion” or not doesn’t matter to the original point – you blew it and advertised your probable xenophobia and lack of actual knowledge.

      Whether the path that China is on is ‘correct’ or not isn’t germane either – the average worker there is doing grrrrrreat as compared to 5, 10 or 15 years ago. The US sucks the big one in comparison.

      And as far as consumption percentages, there’s way more than a small chance that it has bottomed and is in reversal mode, per both Pettis and the actual recent 5 year plans.

      1. PeakTrader

        The data support my statements. China’s “growth-at-any-cost” policy is very inefficient, and when social costs are taken into account, the Chinese are working almost for free.

  13. John Dewey

    James Fallows: “China’s people have been living far worse than they could.”

    While that may be true, do we really know that the Chinese people are living far worse than they desire to live?

    I’m not sure we know enough about the desires of the Chinese people to argue that government purchases of foreign debt has reduced the standard of living of the Chinese people below what it would have been. The household savings rate in China is 38%. Chinese households could raise their standard of living right now just by spending more.

    I’m also not so sure economists can know that the dollar-yuan exchange rate would be sharply different than it is now if the Chinese government stopped buying U.S. debt.

    1. +1 and *bingo*!

      The average so called MSM economist blew it so bad on forecasting the housing peak, financial crisis, the “recovery”, etc. that they should almost be forced to go back to kindergarten.

      When will the damn field grow up and realize even vaguely that they need huge changes, primary of which is to realize that there just possible maybe perhaps be other social sciences in the world.

      That Keynes key was so blindered or whatever that he couldn’t even see that ‘saving’ during good times is anathema to politicians and others worshiping at the money temples.
      And on the other side, the ID 10 T’s who almost exclusively blame Keynes refuse to even look at if his ‘saving/pay back’ theory would actually have been implemented that we couldn’t possibly be in the mess we’re in.

      1. PeakTrader

        Unlike, monetary policy, fiscal policy is controlled by politicians, not economists.

        1. PeakTrader

          I stated in Feb ’09 [the tax cut should've been $5,000 per worker for the 150 million workers at the time or $750 billion]:

          1. Obama should change his stimulus plan to a $2,000 tax cut per worker, along with increasing unemployment benefits by a similar amount. This will help households strengthen their balance sheets [i.e. catch-up on bills, pay-down debt, increase saving, spur consumption of assets and goods, etc.]. This plan will have an immediate and powerful effect to stimulate the economy and strengthen the banking system. When excess assets and goods clear the market, production will increase.

          2. Shift “toxic” assets into a “bad bank.” The government should pay premiums for toxic assets to recapitalize the banking industry and eliminate the systemic problem caused by global imbalances. The Fed has the power to create money out of thin air, to generate nominal growth, boost “animal spirits,” and inflate toxic assets.

          3. Government expenditures should play a small role in the economic recovery. For example, instead of loans for the auto industry, the government should buy autos and give them away to government employees (e.g. a fringe benefit). So, automakers can continue to produce, instead of shutting down their plants for a month. Auto producers should take advantage of lower costs for raw materials and energy, and generate a multiplier effect in related industries.

    2. PeakTrader

      China sold its goods too cheaply and lent its dollars too cheaply to generate a virtuous U.S. cycle of consumption-investment, to raise output and employment.

      It had to sell its goods and lend its dollars even more cheaply, because of diminishing U.S. marginal utility, just to maintain output and employment.

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