I’m not so sure that things were exploding in high speed during the years preceding the Great Crash of 2007/8.
Long term trend for quarter on quarter growth looks like 0.7 going back to the 50’s.
Trend from 1990 to 2008 was 0.69.
Trend from 2000 to 2008 was 0.75.
They looked a little better than the preceding decades and on a higher base.
The reason we catch up isn’t magical it’s linked to the idea of the supply side capacity of the economy and, I think, ultimately, to the root cause of the recession.
There is a theory that, at any one time, there is an upper limit to the potential GDP of an economy. This is different from the actual GDP being produced. The theoretical maximum can change over time as more capital, labour or technology is added but over the short term (in economic terms) is practically fixed. That addition of labour, capital or technology is GDP growth.
In most cases a recession causes some production that would usually have taken place to not take place. People don’t buy some consumer good. A firm doesn’t refurbish its factory. GDP drops or becomes negative. Then confidence returns and people buy the stuff they were going to, invest in the machines they were going to and the actual economy grows quite quickly until it approaches the leading edge of the theoretical maxima. At this point growth slows towards the long term trend.
Some argue (and I have some sympathy) that what we have now is slightly different and that the trajectory of theoretical maxima we thought we were going to have was a) wrong all along or b) broken and so our economy is permanently less than we thought it would be. This being the second of my bad news alternatives. Either we are still growing way below what we would expect or our expectation is wrong.
I see that fact that the rest of the world is catching up with us as a good thing. Endogenous growth theory is not my main strength but I think the fact that other economies are approaching their own theoretical GDP maximum as they load in technology and capital to their economies is good news for us and for our own longer term growth rates. Firstly, their new richer consumer mean demand for our goods and services. Secondly, it is currently very lucrative to invest in developing nations infrastructure and this diverts funds from investing in our own. As their infrastructure gets built out there is more investment available to refurbish or extend our own. Thirdly, as developing nations reach their output frontier they start pushing it by developing technology too. Which means more technology being created and available for us to use.
There are still a few decades to go before this is the case I think.
no subject
Long term trend for quarter on quarter growth looks like 0.7 going back to the 50’s.
Trend from 1990 to 2008 was 0.69.
Trend from 2000 to 2008 was 0.75.
They looked a little better than the preceding decades and on a higher base.
The reason we catch up isn’t magical it’s linked to the idea of the supply side capacity of the economy and, I think, ultimately, to the root cause of the recession.
There is a theory that, at any one time, there is an upper limit to the potential GDP of an economy. This is different from the actual GDP being produced. The theoretical maximum can change over time as more capital, labour or technology is added but over the short term (in economic terms) is practically fixed. That addition of labour, capital or technology is GDP growth.
In most cases a recession causes some production that would usually have taken place to not take place. People don’t buy some consumer good. A firm doesn’t refurbish its factory. GDP drops or becomes negative. Then confidence returns and people buy the stuff they were going to, invest in the machines they were going to and the actual economy grows quite quickly until it approaches the leading edge of the theoretical maxima. At this point growth slows towards the long term trend.
Some argue (and I have some sympathy) that what we have now is slightly different and that the trajectory of theoretical maxima we thought we were going to have was a) wrong all along or b) broken and so our economy is permanently less than we thought it would be. This being the second of my bad news alternatives. Either we are still growing way below what we would expect or our expectation is wrong.
I see that fact that the rest of the world is catching up with us as a good thing. Endogenous growth theory is not my main strength but I think the fact that other economies are approaching their own theoretical GDP maximum as they load in technology and capital to their economies is good news for us and for our own longer term growth rates. Firstly, their new richer consumer mean demand for our goods and services. Secondly, it is currently very lucrative to invest in developing nations infrastructure and this diverts funds from investing in our own. As their infrastructure gets built out there is more investment available to refurbish or extend our own. Thirdly, as developing nations reach their output frontier they start pushing it by developing technology too. Which means more technology being created and available for us to use.
There are still a few decades to go before this is the case I think.