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Thursday, May 19, 2011

A tacit admission of depression

Karl translates Alan Blinder's unusually frank remarks in the Wall Street Journal:
The only reason we have not recognized an economic Depression is because of utterly unsustainable government borrowing and spending of money it does not have and which it has no hope or intent to ever take in via taxes in the future. In other words, the Government has been lying to you.

There has been no economic recovery and we are in an economic Depression right now and have been since 2008.

There was no economic recovery after the 2001 Nasdaq collapse. The government borrowed and spent about 5% of GDP at the time every year to fake a recovery and we ran a debt-based false "recovery" when in fact we were in a five year long recession marked by an orgy of false "wealth" through bubbling home prices.

Now we're borrowing and spending 12% - more than double that amount - a year to fake a recovery that has shown up in stock prices, and it mathematically must end the same way.
This is exactly what I attempted to warn everyone of in my economic columns in 2008 and in RGD. GDP is a terrible measure of economic growth because it is so easily gamed through the G component, government spending. What the 78% increase in government debt since the second quarter of 2008 has done is to create $4.1 trillion of fake growth. Needless to say, this is substantial in a $14 trillion economy.

The ironic thing is that if the pre-Keynesian measures that Keynes himself utilized in determining economic growth and contraction are used, it would already be recognized that we were in a depression due to the number of jobless people across the country. But due to the development of sophisticated statistical measures, the government is now able to claim that there is "real" economic growth even as the employment-population ratio continues to fall. Even many economists have forgotten that metrics such as GDP and U3 are merely measures of an observable underlying reality.

But as I have repeatedly pointed out, the map is not the territory, and unfortunately, the present economic map is becoming increasingly inaccurate.

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