Look: I am eager to learn stuff I don't know--which requires actively courting and posting smart disagreement.

But as you will understand, I don't like to post things that mischaracterize and are aimed to mislead.

-- Brad Delong

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Wednesday, June 8, 2011

Spending vs Income

I'm not a Freakonomics fan, and don't follow the web site.  (Thinking like an economist about economics is bad enough. Thinking like an economist about other stuff leads to ideas like combating global warming by shielding the atmosphere with clouds of sulfur dioxide.)  But this post, circuitously via Krugman, via Thoma, by Justin Wolfers is interesting.   And it is about economics.

It illustrates the differences between spending based GDP (the usual measure) and income based GDP.  In a perfect world, they are equal.  Oh, well.  The graphs tell the story.  Go read the post.

Here are the conclusions.

1.      The slump began in late 2006. And indeed, we were hardly enjoying good times through early 2006.
2.      It’s a big slump, and GDP per capita fell by over 7 percent.
3.      We remain a long way below the previous peak.
4.      It’s going to take a long while to return to where we were back in 2006. Most forecasters are expecting GDP to grow by around 3 percent, implying per-capita growth closer to two percent. At those rates, average incomes in 2013 will (finally!) be back around the levels of 2006.

Finally, it’s worth emphasizing another key statistical finding from Nalewaik’s research: Over the next few years the Bureau of Economic Analysis will continue to revise their estimates of what has happened, and if history is any guide, their revised estimates of the blue line will look a lot more like the red line.

Not only are we poorer than we have to be.  We're poorer than we realize.


Jerry Critter said...

If one persons spending is NOT another persons income, where is the money going?

BadTux said...

To pay debts, Jerry.

- Badtux the Indebtedness Penguin