Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20
Does the Stock Market Really "See" the Future? - 12th Sept 20
Basel III and Gold, Silver and Platinum - 12th Sept 20
Tech Stocks FANG Index Nearing Critical Support – Could Breakout At Any Moment - 12th Sept 20
The Tech Stocks Quantum AI EXPLOSION is Coming! - 12th Sept 20
AMD Zen 3 Ryzen 4000 Questions Answered on Cores, Prices, Benchmarks and Threadripper Launch - 12th Sept 20
The Inflation Mega-trend is Going Hyper! - 11th Sep 20
Gold / Silver Ratio: Slowly I Toined… - 11th Sep 20
Stock Market Correction or Reversal? The Jury Isn't Out! - 11th Sep 20
Crude Oil – The Bearish Outlook Remains - 11th Sep 20
Crude Oil Breaks Lower – Sparking Fears Of Another Sub $30 Price Collapse - 11th Sep 20
Inflation by Fiat - 10th Sep 20
Unemployment Rate Drops. Will It Drag Gold Down? - 10th Sep 20
How Does The Global Economy Recover After This Global Pandemic? - 10th Sep 20
The Best Mobile Casino - 10th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

US Economy Confounds Economic Pundits

Economics / US Economy Sep 08, 2008 - 01:51 AM GMT

By: Gerard_Jackson

Economics What gives here? The Commerce Department reports that GDP grew at an annual rate of 3.3 per cent while unemployment rose to 6.1 per cent, giving partisan commentators enough ammunition to attack each other. Politically I'm a very conservative man who thoroughly detests the Democratic Party and who tends to think of most journalists as nothing better than leftwing cockroaches, an opinion that has been greatly strengthened by the media's disgusting attacks on Sarah Palin. Nevertheless, the one thing I will never do is bend economics for partisan reasons. To do so would be to cheat my readers.

So did the economy really enjoy 3.3 per cent growth in GDP? The answer is yes. Does this mean that the economy is basically healthy and that Americans can look forward to steady economic growth from this point onwards? The answer is no. First and foremost, I want to make it clear that in my opinion there has been very little economic growth of late.

Let us first deal with the 3.3 per cent figure. There exists what economists call the J-curve. This illustrates the fact that a devaluation lowers the costs of a country's products in terms of other currencies and, in doing so, raises the costs of imports. (The reverse is also true). This is why a falling dollar led to a surge in US exports, including manufactures. The resulting surge had a positive and significant effect on GDP. Nevertheless, it probably did nothing for economic growth.

To increase production for exports American companies have to divert capital and labour from production for domestic use to production to satisfy foreign demands. This naturally raises the incomes of exporting firms which then adds to GDP. Now growth as defined by the Austrian School of economics is something else altogether. The Austrians stress the vital importance of a capital structure which consists of complex stages of production. (This approach was quite common in some early economic text books).

Therefore, growth is the process of extending this structure by adding more and more complex stage of production to it. Where labour and capital are diverted from production for domestic use to production for exports, it can easily be seen that this process in itself does not add a single stage to the production structure. Hence there is no growth. In fact, unemployment can start rising even as the demand for exports surge, as can be seen from recent unemployment figures.

Of course, as unemployment rises the fallacy that consumption drives growth is resorted to. For example, Richard Yamarone, an economist at Argus Research, expressed fears that rising unemployment would cause consumers to reduce their spending. Terry Connelly, dean of Golden Gate University's Ageno School of Business, expressed the same fear when he argued that mixing "Mix business caution with consumer exhaustion and you have a recipe for a real recession". This is pure baloney.

Time and time again I hsve stressed that total spending could be as high as 2.5 times GDP because GDP is not a gross figure: it is in fact a net value-added approach that omits a huge amount of spending between the stages of production. I cannot find a single historical example of a recession being triggered by falling consumption. In every instance of the business cycle the recession always started in the higher stages of production -- and this was certainly the case with the Great Depression.*

I would say that what we are seeing is the tale end of a boom that has worked its way out. Naturally, this will not stop the mass of political activists that have the gall to call themselves journalists from blaming the Republicans in general and Bush in particular when the real culprit is lousy economics. And it won't stop these political bigots from confidently asserting that what America needs is Obama's proposal to burden the economy with a $683 billion tax hike over five years.

*In any case of a consumption-led recession one would find that virtually all of the expenditure of the preceding boom would have been concentrated on consumption. This would not fit the pattern of the boom-bust-cycle.

By Gerard Jackson

Gerard Jackson is Brookes' economics editor.

Copyright © 2008 Gerard Jackson

Gerard Jackson Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Adam Smith
08 Sep 08, 19:19
Democrat and Republican Parties

There's no difference between these parties, they are both owned and operated by corporate America. They are both corupt.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules