Where is the US economy headed?

For georgeob and anyone else interested. This is the new Supercarrier, USS Ronald Reagan.

georgeob1 wrote:

In effect you are asserting that the dynamic equations for gross economic activity are somewhat dependent on the time rate of change of taxation, but not at all on the level of taxation. This defies common sense and it is not at all difficult to construct contradictions, based on the proposition.

Yes I do assert that -- at least for time periods greater than three years, and for rates of taxation that free countries from Hong Kong to Sweden might realistically enact.

georgeob1 wrote:

The US economy in the post WWII years was buoyed up by the physical facts that (1) we retained most of the undamaged physical plant and productive capacity of the world; and (2) we had most of the capital.

If I understand you correctly, you are saying that America's growth in the fifties and sixties was primarily export-driven, and that's why it's weak evidence for my point. I'm not buying your argument for two reasons.

a) The numbers don't match. During the period we're discussing, the current surplus as a share of GDP was some single-digit number of percents. (I'm too lazy to look up the precise value.) Therefore, even if the growth in net exports had been really spectacular during this period -- say 10-20% per year -- it would still have been way too small to account for much of America's GDP growh.

b) The timing doesn't match, either. If export driven growth explained America's growth ca. 1950-1970, we should see America's trade surplus crash when GDP growth slowed to a crawl. But we don't see this in the data. By contrast, GDP growth slows in the early 70s, but the current account surplus doesn't turn into deficit until the 80s.

georgeob1 wrote:

I think you will agree that our current economic era began with the end of the "stagflation" of the late 1970s & early 1980s.

No, actually I don't agree with that. After correcting for the business cycle, GDP growth in the 80s remained as slow as it had been since the early 70s. It didn't resume its pre-70s speed until the end of the 90s.

Nostalgia dys.

Do you play the violin?

dys, Good observation; to peggy-back on the exchange rate of the US dollar against the English pound, there is also the issue of per capita income in both countries. Seen from "that" perspective, it doesn't make much sense, except from the standpoint of too much dollars floating around in this world without much to back it up.


This is a graph that shows the trend in real wages in the US.


This is a graph that shows our debt load.


And finally the trend in the exchange rate of the US dollar.


With higher energy costs, we're going to see this trend continue, because Americans are spending more and saving less, our purchase of imported goods will rise (exchange rate disadvantage), and our GDP will suffer as we continue to buy with ever cheaper dollars from future earnings.

The talk of recession will become more common in the pundit's vocabulary as the months trend towards 2008.

Miller: Where's the graph of "real wages"?

It's the top right graph.