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Us - Guess Why The Economy Isn't Performing....

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http://www.nytimes.com/2014/08/05/upshot/why-is-the-economy-still-weak-blame-these-five-sectors.html?ref=business&_r=0

The economy keeps underperforming. Yes, new G.D.P. data last week were better than expected. But the United States is still producing around $800 billion a year less in goods and services than it would if the economy were at full health, and as a result millions of people aren’t working who would be if conditions were better.

But why? Where is this gap coming from? To get at an answer, we needed a more basic question: What would the economy look like right now if it were fully healthy, and how is the actual reality of the economy right now different from that?

We started by examining how large a proportion of G.D.P. that various sectors have accounted for historically — over the two decades ending in 2013, to be precise. (Initially, we looked at the full history of G.D.P. data, going back to 1947, but the economy was sufficiently different in the immediate postwar period compared with today that it seemed more sensible to limit it to more recent history.)

Then we multiplied those percentages by the Congressional Budget Office’s estimate of what the United States’ potential output was in the second quarter of this year. That gives us a sense of what output “should” be in each sector if we had a healthy economy and those historical proportions held.

Continue reading the main story Sectors Holding Back the Economy

A handful of sectors, including housing, government spending and spending on durable goods, are at fault for the continuing underperformance of the American economy.

Gap between actual output and estimate of output in fully healthy economy (in billions)
Services consumption
Business inventories
Intellectual property investment
Net exports
Business structures
Nondurable goods consumption
Federal government
Business equipment investment
Durable goods consumption
State and local government
Residential investment
62.6
53.1
28.9
21.3
-15.3
-74.4
-118.5
-119.9
-178.7
-189.2
-239.4
artboard-600px.png
Model based upon Congressional Budget Office’s estimate of potential G.D.P. in the second quarter of 2014 and the average proportion of G.D.P. of each sector from 1993 to 2013. Numbers are annualized.

As it turns, six of 11 sectors we analyzed are doing fine, with output that is either stronger than or not too much worse than our model predicts. For example, consumer spending on services is exceeding the projection by $63 billion, with spending on nondurable goods undershooting by $74 billion. (Those numbers, like others contained in this analysis, are annualized). Business spending on intellectual property is a bit stronger than you would expect in a healthy recovery, spending on buildings a bit weaker. Trade is holding its own.

The following, however, are the five pieces that are the major culprits in the nation’s economic malaise, each vastly undershooting what they would look like in our model of a healthy economy: residential investment; consumption of durable goods; state and local government spending; business investment in equipment; and federal government spending.

Together their deficit adds up to $845 billion — in other words, if those sectors returned to their typical share of economic potential, the economy wouldn’t just be doing well, it would be in an outright boom.

Let’s take these five factors in failure one by one.

Housing is the biggest and least surprising, accounting for $239 billion in missing economic output. We examined this sector’s continued underperformance earlier in the year, but the short version is this: Even years after the housing bust, the United States is building far fewer houses than would be expected given demographic trends. It may be that a broader shift is underway in the desire and ability of young adults to get homes of their own. Regardless, it is holding back construction and home sales activity.

This is why HPI is so important to the global economy now. Without it we have missing output..... The idea that this output was an illusion and didn't exist is just too explosive to contemplate.

Still once the magic of bricks and mortar comes back we'll all be in the money!

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The jobs are in Asia and they are never coming back

A strong government could bring them back within 5 years, China needs western consumption. All we need is import duty and factory investment grants instead of bailing out banks.

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A strong government could bring them back within 5 years, China needs western consumption. All we need is import duty and factory investment grants instead of bailing out banks.

The cost of 'bringing the jobs back' would be much more expensive consumer goods - i.e. a likely much lower standard of living for the general population. Of course, there should be increased employment which would give people who would otherwise be on benefits a higher income and more demand for labour should help boost wages but somehow I doubt it would be enough to compensate.

Tariffs and trade barriers are rarely a good idea in the bigger picture - but they can be an expedient measure for politicians to mollify disenchanted voters when economic times are bad.

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Erm, I previously thought that construction of houses didn't contribute (directly) to GDP - because houses were judged to be capital assets... whose 'imputed rents' were included instead, Of course, I recognise that there would be numerous spin-off consequences of house-building that would be included.

Isn't the main problem that targeting GDP is inane?

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Design a product and have it made in another country. As long as the labour cost of making the product is a small %, it doesn't impact the economy much. Avoiding tax on the profits does more harm to the country.

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The cost of 'bringing the jobs back' would be much more expensive consumer goods - i.e. a likely much lower standard of living for the general population. Of course, there should be increased employment which would give people who would otherwise be on benefits a higher income and more demand for labour should help boost wages but somehow I doubt it would be enough to compensate.

Tariffs and trade barriers are rarely a good idea in the bigger picture - but they can be an expedient measure for politicians to mollify disenchanted voters when economic times are bad.

Allegedly.

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A strong government could bring them back within 5 years, China needs western consumption. All we need is import duty and factory investment grants instead of bailing out banks.

Which is why it will never happen

If anyone suggests anything remotely closed to that you will just be called a Nazi

Even Clegg came close with his 'LOOK FARAGE WANTS THE GOLD STANDARD BACK HE MUST BE A LUNATIC' in that EU debate.

We have never needed trade barriers more, thanks to increasing technology

Fast transport and the INTERNET means that it is literally impossible to compare the influence of trade barriers and protectionism from the 1930s to the modern day.

And paying £1000 for you ipad instead of £500 seems a worthwhile trade-off for the thousands of jobs it would bring back. It's obvious it costs the country more as a whole to have the product built in China. You are placing literally hundreds of thousands of people on government handouts to save £500 on a highly specialised item that relatively few people buy (and would still probably get one at the higher price if it was made here).

The governments of the west have actively encouraged jobs to be shipped off abroad and have even agreed to pay for the destruction it has left behind.

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The US economy isn't underperforming. This is the new normal. US real GDP growth has averaged 1.8% per annum for the last fourteen years. And that's based on the Fed's phoney, understated GDP deflators. The true rate of growth is much lower, possibly even negative.

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