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Discussion: (40 comments)

  1. Citizen B.

    How do mature economies juice up growth prospects?

    They seek Free Trade with emerging economies such as Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, and Vietnam .

    The latest opportunity for the U.S. is to join the above countries, along with Canada and Mexico, in the Trans-Pacific Partnership.

    There is hopeful speculation that Japan will join the TPP iniative.

    1. How do mature economies juice up growth prospects?

      Well, in the case of the U.S. and many European economies, they could address some of their domestic concerns that have been neglected for so many decades.

      1. Well, in the case of the U.S. and many European economies, they could address some of their domestic concerns that have been neglected for so many decades“…

        Do you mean that the excessive taxation and regulation the basically spreads the misery should somehow be mitigated and rolled back?

      2. PeakTrader

        Citizen B. says: “How do mature economies juice up growth prospects?”

        In the case of the U.S., get rid of about $1 trillion a year in overregulation (U.S. federal regulation alone cost roughly $2 trillion a year), cut overspending several hundred billion dollars a year (the federal government spends roughly $1 trillion a year more than when the economy peaked in 2007), and cut taxes several hundred billion dollars a year.

        1. Citizen B.

          Yes, I don’t disagree.

  2. PeakTrader

    An increase in global production capacity implies disinflation.

  3. Did you notice that in 1998 when the world economy did not do so good, the U.S. economy was making a pretty come-back? And, under Bush 43, how poor our own growth was while the world economy was doing much better?

    1. PeakTrader

      The “Misunderestimated” President:

      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 expansion instead of this on-going depression and “train wreck.”

      1. A stock market crash??? — it was approximately 20 to 25% from 2000 to 2002. I don’t know how old you are, but I started working in 1959 and still work today. We had the stock market go down from near 1000 to just under 400 during the Arab oil embargo around 1973 — in about two weeks. In 1987, we had a real stock market crash. You exagerate and don’t know what a real crash is. Besides, the wealth of a country is determined by its productivity, not asset inflation.

        1. PeakTrader

          The S&P 500 fell from 1,527 in 2000 to 800 in 2002. Nasdaq still hasn’t recovered.

          1. The S&P 500
            It took three years for that decline — not two weeks.

          2. PeakTrader

            Yes, it was a real decline.

          3. Decline??? — YES! Crash??? –NO! And it hit the technology sector. So the tech heavy NASDAQ takes it in the shorts — we are still no where near 4000. The Dow Jones Industrial — has less of an effect (30 stocks). The SP500 — has more tech than the Dow. You exagerate the mild recession we had in Bush’s years — and it started with Clinton. We had budget surpluses (like we should have — instead of deficits) near a full -employment economy, in effect contracting the economy; plus, trade/balance of accounts deficits sucking money out of the economy — thus, a mild recession. 9-11 got blamed on all kind of things that had little to nothing to do with the economy — people not going on vacation, consumers not spending, etc., etc.

          4. PeakTrader

            Bush and Greenspan made it a mild recession, including the tax cuts. The U.S. had a long-boom and a spectacular bull market. The bear market began in 2000. It was a crash, in part, because Clinton failed to cut taxes, including capital gain taxes and the Alternative Minimum Tax.

          5. Vic Volpe

            We had budget surpluses (like we should have — instead of deficits)…

            Just a small bone to pick here about your claim of a budget surplus: there has been no actual budget surplus since the Eisenhower presidency.

          6. Ron H. — you are right. The Operational Budget was in deficit. The Social Security surpluses put the overall budget in surplus.

          7. morganovich


            you seem to be over your head here and making up facts.

            the S+P dropped from 119 in 1972 to 63 in 1974, a 47% drop over a bit over 2 years. your claim about “2 weeks” is pure fiction. the S+P nor any us stock market has EVER dropped 60% in 2 weeks.

            you are just flat out making up numbers.

            the dow was 1050 in 1972. it dropped to 577 in 1974.

            not only is that a 45% drop, not a 60% drop, it took over 2 years, not 2 weeks.

            as the old adage goes, you are entitled to your own opinion, but not your own facts. the facts you are using here are complete fabrications.

            the drop from 2000-2 was as deep and as sharp as anything from the 70’s. it was also a much nastier crash economically as far more americans owned stocks and the capitalization of the stock market relative to the economy was much higher.

            of course, both the 70’s crash and the 200 crash were smaller than the one from 2008-9 in which the S+P lost 52% in 8 months.

            i would suggest you take an actual look at a long term S+P or Dow chart. you are literally just making stuff up.

          8. Mea Culpa. I stand corrected.
            In late Oct 1974, the Arab oil embargo on the U.S. Six weeks later the DJIA backs off 20%. The “9-11 Crash” wound up with a gain in three months — hardly an affect on the economy. Of course the economy and markets were in decline prior to the attack, and that continued into 2002 and 2003.
            I do not agree with the comment about more Americans being invested in the market — they are mainly passive investors, 401k and retirement funds, not discretionary funds. Those accounts don’t get tapped into until this last recession.
            The 2000-2003 market performance affected high-worth folks who count for savings/investment. But when they got the majority of the massive tax cuts, it went overseas for investment, not here.
            Because of income inequality here and tax havens and foreign subsidies overseas for investment, tax cuts are not stimulating spending in our consumer economy (by middle-class working folks) and we are not getting the needed investment in infrastructure, manufacturing, or much else.
            So we’ll see where this world-wide increase in growth takes us.

          9. Vic

            Ron H. — you are right. The Operational Budget was in deficit. The Social Security surpluses put the overall budget in surplus.

            Actually, Gross Federal Debt, as seen in this chart from the St. Louis Fed, increased every year during the Clinton administration. Although FY 2000 was close to being balanced, total spending in every year exceeded total revenues, so there was never an actual surplus. The tables in my previous reference indicate the same thing.

            Only be using imaginative accounting gimmicks involving intergovernmental debt did there appear to be a surplus.

            Imagine moving money from your left pocket to your right pocket and calling it income, and you’ve got the picture.

      2. Second, yes we did have some prosperity during the Bush years — but slow growth, industrial capacity (investment) that hardly increased. We have a disparity in income growth, so that all who work do not benefit from the productivity growth. The unequal income distribution means that upper income people pay more of the share of taxes than the rest of the population — in other words not a good base for raising income taxes. Or for that matter trying to stimulate a consumer economy with spending by tax cuts to working people who are stretched to begin with. If you think this last decade was “was one of the greatest periods of U.S. prosperity” — COMPARE IT TO THE ’60’S.

        1. PeakTrader

          They benefited from lower prices. The U.S. consumed up to $800 billion a year more than it produced, in the global economy, and the country reached full employment.

          The 1960s is a poor comparison.

          1. We never reached anywhere near full employment under Bush — either one. The closest we came to full employment lately was around 1999-2000 — we dipped under 4% and when Greenspan testified to Congress about the budget surpluses said we were approaching full employment (somewhere at that time estimated between 3.25 and 3.5%).

          2. The $800 billion a year we consume is on borrowed money — not all bad, but not that good either.

          3. PeakTrader

            In the late ’90s, the country was beyond full employment and producing above potential output. You talk about productivity. The U.S. economy was much more efficient under Bush, which was in a virtuous cycle of consumption-investment (i.e. foreigners selling their goods too cheaply and lending their dollars too cheaply). U.S. living standards improved even faster than the late ’90s, with less effort, and the unemployment rate under Bush fell below 5%, i.e. to full employment.

          4. The economy is not a puzzle to piece together. I am pretty much a free marketer in what is called a mixed economy — there is a place for government. I’ll confess to being under the influence of Keynes — because I was educated with a Samuelson text book in the ’60’s; but, I am not an ideologue. I focus on GDP because it is a good overall measure — basic macro stuff. But, it also depends on how the productivity increases are distributed by income groups — that has been our big problem since the ’60’s. Especially now since we turned into a consumer economy and relie less on the industrial/commercial sector — in the 60’s that made up a substantial part of our overall demand, about 1/3. If we had that today, we would have more options in trying to stimulate the overall economy rather than just relying on consumers or trying to get more exports from just 10% of the economy.

        2. PeakTrader — I’ve got links up there to historical data. If we can’t agree on the facts, we have no argument.

          1. PeakTrader

            I doubt you can put the economics puzzle together to make everything fit properly.

          2. PeakTrader

            You seem to be focused on GDP as the sole measure of living standards.

      3. If you think the recession that Bush inherited in 2001 was serious (compared to 19991-1992, 1980-1982, anything in the ’70’s) you must work in hi-tech — which I will admit was hit hard. At that time I worked in construction (I’m in S. Calif) and it only slowed things down, I still worked. Not counting 2008, I don’t think we have had a really serious recession since the one Reagan inherited from Carter — that one hit the whole country, all industries and occupations, hard. We had some bad recessions in the ’70’s, but they weren’t that long. The early ’90’s recession did not hit the whole country and every industry hard and it didn’t last that long.

      4. Also, as to the Bush recovery of 2001 — He had a massive tax cut (over $1 trillion for 10 years) that went mostly to the upper income supposedly because they create jobs — but, the investment in the U.S. never followed, it went overseas. And it only made income inequality worse, something they were aware of and trying to fix (but didn’t). The only thing the Bush policies did was put a bottom on the decline from a mild recession And so in 2008, to give a tax cut that most folks would feel, they had to cut the social security tax. There is nothing in Bush’s record (or Greenspan for that matter) that indicates either one of them understood the Great Recession of 2008 or how to get us out of it — I think I can say the same for Obama now also. Obama had a golden opportunity (that he flunked as far as I’m concerned) to transform the economy from a consumer-driven economy (which we have had for several decades) to a better mix of industrialization and commercial enterprises — it has been very slow getting some of the industries back from overseas.

      5. Here is a comment from a GAO Report on the Financial Crisis from last month:
        “The studies do not consider the stock market crash of 1987 or the bursting of the technology bubble during 2000-2001 to be banking crises, because neither placed severe strains on the financial system that threatened the economy.” [page 16 of the Report] NOTE: “neither placed severe strains on the financial system that threatened the economy”.]

  4. Concerning the “bottom line”: Of course when you outsource your manufacturing base it’s hard to take advantage of the world recovery with exports when the manufacturing sector is such a small part of your overall economy — and that’s considering we are still number one in exports by dollar volume and tonnage. If manufacturing were 25% of our economy, our recovery would be much better — thus Germany (which emphasizes manufacturing) does better in this scenario.

    1. PeakTrader

      Vic says: “Of course when you outsource your manufacturing base it’s hard to take advantage of the world recovery with exports when the manufacturing sector is such a small part of your overall economy…”

      The U.S. offshored low-end manufacturing, imported those goods at higher profits and lower prices, and shifted (limited) resources into high-end manufacturing and emerging industries.

      1. High end manufacturing makes up one-third of manufacturing. We have a lot of capacity growth (investment) that has stalled since 2000. We had higher tax rates and plenty of regulation in previous decades and still had much better growth. This past decade is a poor performer and you can’t make excuses for it.

        1. PeakTrader

          Did U.S. producers and consumers really do worse?”

          The hidden downside of Santa’s little helpers
          The Irish Times
          December 21, 2002

          “An investigation into the price of a Mattel Barbie doll, half of which is made in China, found that of the $10 retail price, $8 goes to transportation, marketing, retailing, wholesale and profit for Mattel.

          Of the remaining $2, $1 is shared by the management and transportation in Hong Kong, and 65 cents is shared by the raw materials from Taiwan, Japan, the US and Saudi Arabia. The remaining 35 cents is earned by producers in China for providing factory sites, labour and electricity.”

      2. The example you cite for Mattel only goes to show that labor is not a major component of costs — when the manufacturing facility is off-shore all the ancillary businesses lose out. There was a interview with Jef Immelt of GE and the topic was manufacturing — moving back to the U.S. — listen to him discuss the costs — two dollars of labor (in the U.S.) to manufacture a refrigerator. I was in China in 1986 — I wonder what subsidies foreign manufacturers get when they move to China? I walked down the dirt street of a new city they were building in Southern China that would be primed for just one industry. Who recruits Chinese labor for U.S. manufacturers? … who does the interviewing? …who houses them? …etc., etc.

  5. Of course when you outsource your manufacturing base…“…

    Well if the government didn’t suck a $198 billion a year in regulatory compliance fees and penalties out of the private sector there might be more ‘made in the USA‘ production…

  6. Jon Murphy

    Interesting chart, Doctor Perry. Helps keep it in context that the US is not the Alpha and Omega in the world economy.

    That said, it does also show how big the US economy is. If you look at the years with the slowest growth, they are all US recession years.

    I must admit, I am always humbled at charts like this and the table you posted the other day laying out the major US industries by GDP. It really shows how big the US economy is and how wealthy Americans really are.

  7. Benjamin Cole

    The central bank of Chin targets 4 percent inflation as a ceiling, but will break that ceiling, if they feel more growth is needed.

    China, as we know, is booming.

    Japan’s central bank has targeted no inflation for the last 20 years. Japan, as we know, has been in perma-gloom.

    The world’s central banks are suffocating economies worldwide (with the exception of China).

    But what would you expect from independent public agencies? Ossification? Of course.

    Like the DEA, like the Pentagon, like HUD, like the USDA, like public agencies everywhere, central banks are fighting mythological or past wars, or on exalted missions.

    Missions to nowhere at great public expense.

  8. This chart is of PPP growth, not nominal. It appears to be rising only due to the PPP calculation.

    Stock markets and corporate earnings are only driven by nominal growth.

    If World GDP were charted to nominal growth, the trendline would be flat, not rising.

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