More on the Economy–Economics 101 (Not Levels, but Growth that Counts)
September 6, 2010 Leave a comment
From Paul Krugman. This is not political, it is just simple economics.
If you want the economy to accelerate you must keep stimulus growing. The economy must grow faster to raise absolute levels of employment, otherwise, unemployment stays the same or gets worse.
Delusion #1 is that we’re on the road to recovery, just more slowly than we’d like; to be fair, the White House keeps saying this.
But it’s not at all true. GDP is growing below potential; employment, even if you focus just on private employment, is growing more slowly than the working-age population. If you ask how long it will take us to return to, say, 5 percent unemployment on the current track, the answer is forever.
Delusion #2 is the belief that the stimulus may yet do the trick, because there are still substantial funds unspent. I tried to deal with this last year. The level of GDP depends not on total funds spent, but on the rate at which funds are being spent, which has already peaked; GDP growth on the rate of change in the rate at which funds are being spent, which peaked last year. It’s all downhill from here.