Tuesday, September 13, 2011

Another Lesson on National Income Accounting for Robert Samuelson | Beat the Press

Another Lesson on National Income Accounting for Robert Samuelson | Beat the Press
So, if neither investment nor consumption is the problem, then why isn't the economy bouncing back? This is where national income accounting would be very useful to Mr. Samuelson. The problem is that the country has a large trade deficit. It is close to 4.0 percent of GDP now, and would likely be in the 5-6 percent range if we were back at full employment. (Higher GDP increases imports, which would increase the size of the deficit.) This creates a huge shortfall in demand.

This shortfall was filled during the housing bubble years by a consumption boom and boom in residential construction and some categories of non-residential construction. With the loss of housing bubble wealth, there is no reason to expect consumption to return to its bubble levels.

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Interesting take on the situation from Dean Baker. He says increased deficit spending is the way forward.

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