Summers said: I want to focus on that second half. We have lost 5 percent of capacity
that we otherwise would have had. Let me describe that 5 percent in some
other ways. It is $800 billion. It is more than $2,500 for every
American, more than $10,000 for every family of four….
Off the Charts Blog | Center on Budget and Policy Priorities | Summers: Lack of Demand Creates Lack of Supply
the lost potential GDP increases with time because of the cyclical nature of this issue. putting the numbers with respect to individual and personal brings it home and explains the gaping income inequality disparities in the U.S. today with a vanishing middle class SES. there is an obvious and remarkable disproportionate effect on the lower middle class to the low income individuals and families that has also continued to worsen. cyclical as it is, the short and worst end of the stick is left for those in the low income level and there is very little power in the hands of those to change that
ReplyDeleteI would be interested to see how these trends and percentages of potential GDP lost compare to other countries, particularly the European ones. Given our relatively faster recovery, I am curious about how the red line after 2008 (i.e. the recovery) compares. I would imagine that the slope for our graph would be slightly steeper than the slope of other countries.
ReplyDeleteTo me, this graph really screams hysteresis, but hopefully I'm wrong. Hysteresis is a situation where one-time disturbances permanently affect the path of the economy. That is, the damage the crisis did to U.S. real GDP is permanent and irreversible and not a result of a short term disequilibrium of aggregate supply and demand.
ReplyDeletePeople have had endless talks about losses but I wonder what the economy would be like without the 2008-2009 crisis. Would we really want to keep the status quo, which was so flawed and badly needed fixing? As we discussed in class, no single market player fully felt the impact of the crisis, let alone took action to fix it. Having little control over an overwhelming situation, all players chose to downplay and deny the problems instead. Given this mentality, it is hard to imagine that the problems would ever get treated without the happening of a financial crisis. In short, a financial crisis may be a healthy dose of reality for the market to correct itself.
ReplyDelete