Real GDP Growth Has Been Negligible Since 1990

This is interesting, spotted it posted on the Lew Rockwell blog a day or so ago. Of course, I don't understand why we no longer talk about GNP. Oh wait, I do. It's because our GNP has been going backwards and it was no longer used by the government once NAFTA was coming into effect.

Anyways, to the meat of the post.

http://fskrealityguide.blogspot.com/2007/12/real-gdp-growth-has-been-negligible.html

Big surprise they stopped showing M3.

 

Fuckers!!! They are milking everybody dry!

 

Does this mean America sucks?

 

What this means is that if we do not change things it will suck to the point that you will eat your words Gtech.

 

No. It means that the inflation of the money supply has negated real growth.

 

Isn’t it possible that since the GDP increased by 140% over 10 years, that some of that money would go into saving accounts, money market accounts and CDs? Which is what M2 Tracks

 

I believe that is what MzM tracks.

 

It doesn't seem to me that the analysis makes any sense at all. Over recent years certain analysts have correlated growth in M2 with growth in GDP, suggesting that they seem to grow similarly.

They don't have a relationship whereby one can subtract the growth rate from one to another. They are related by dividing one into the other to determine something--velocity. How fast money works to generate activity within the economy.

For instance high velocity would imply that money is circulating within the economy to increase more GDP- more nationwide growth.

In any case the analysis makes no sense to me at all.

It would make sense, on the other hand to factor an inflation factor into gdp to compare it by years. It also makes sense to factor (divide) gdp by households whereby you get a gross product number per household. Assessing number of households by an inflation adjusted gdp would be an interesting number to test if gdp is increasing or decreasing per household and by inflation.

But the very beginning of this analysis (subtracting growth rate in m2 from growth rate in gdp) seems disconnected to me. That's like comparing apples and oranges.

Statistics can be misleading.

 

Well, wouldn't it make sense to remove the growth rate of the currency in circulation from the growth rate of GDP?

If we double the money supply, theoretically, GDP would see a similar increase because there are more dollars being exchanged...

 

It makes no sense to me. If you are really testing for gdp, gdp against inflation or gdp against the number of households, why subtract money supply.

Increases in money supply don't detract from gdp. The thing that would detract is inflation itself. If gdp went up 5% and inflation went up 5% (both in a year) then gross product would be the same as the previous year in constant dollars. If number of households increased then gdp divided by households would have shrunk.

Money supply may go up or down (okay never down) but it isn't used as an offset against gdp. Its different.

 

How so? Wouldn't GDP be distorted when compared relatively to previous years, if the money supply was increasing?

Remember, we're talking about people who don't live with their heads in the clouds here. Core CPI is a poor measure of inflation, many people will agree with that.

Inflation is most caused by increases in the monetary supply. Until we can establish this as common premise, we'll continue to chase around in circles on the issue.

 

Why is he using nominal GDP? While inflation and increase in the money supply are directly related, they don't equal each other. That's the whole reason why we use real GDP. No one claims that the real growth was 140.6%.

 

http://www.reuters.com/article/businessNews/idUSN1636789220071216

 

He's using nominal because he is using M2 as the inflation factor.

We can't use Real GDP (already adjusted for inflation), and then make a comparison to the money supply.

Hope that makes sense, I wasn't 100% sure I understood your question.

 

I'm saying that increase in M2 does not equal to inflation. It only implies inflation.
Also, what makes you think that "GNP has been going backwards"? GNP is based largely on GDP, so there is no way that they can have an inverse relationship unless net US income receipts is consistently negative and decreasing.

 

Right, and his assertion is that removing statistical inflation/deflation and using M2 yields an interesting analysis.

GNP is a subset of GDP.

 

Ok, interesting it is. Accurate? We may have to disagree.

That's basically what I told you. I even gave you the component which distinguishes GDP from GNP. So how is GNP going backwards? Can you mathematically prove this?

 

I can live with that.

GDP is outpacing GNP. I'm pretty sure (without checking), M2 is outpacing GNP.

 

Actually, they're growing at a similar rate with GNP slightly outpacing GDP (and therefore M2).
In nominal figures:
GDP in 1992 - $6244.5 billion
GDP in 2006 - $13194.7 billion
GNP in 1992 - $6255.6 billion
GNP in 2006 - $13252.7 billion

 

Something about this post always bothered me.

Its a misuse of an equation to try and prove a point.

There is no direct relationship between growth in money supply and gdp, gnp, or real gdp.

Creating a mathematical relationship when there isn't one is a simple tool to mislead people.

Lacking a real relationship I could substitute something else for the growth in money calculation, say the web market share of Yahoo. It also has no direct relationship with gdp.

Ready To Go, myself, and this person, the only person to comment on the article all had problems with the calculation;

Its misleading to create a false statistic to try and prove a economic point.

Its lousy math, lousy economics, and deeply misleading.

At the least, if someone is going to try and make points, publish them, tie them to an economic theory, they should make an effort to be rigorous in their thinking.

Rockwell of course didn't respond to the critique on his blog and never followed up with a secondary analysis he offered if some requested it.

I think it was simply bogus analysis to try and prove a political perspective.