Tuesday, August 23, 2011

A quick glance at the big picture

There are many elements that are important in seeing the United States economy as it actually is in the years after the crisis of 2007/8.  The following graph shows the Bureau of Economic Analysis' estimates of real (inflation-adjusted) GDP together with the Congressional Budget Office's estimates of potential real GDP.

Real GDP (BEA) vs. Potential Real GDP (CBO)

For clarification, GDP is the primary measurement of national income and spending and potential GDP is an estimate of what the national income and spending level would be with the full employment of resources in the economy.  Through the last quarter of 2007, GDP was performing at the trend for full employment.  During 2008 there was a catastrophic decline in the performance of the United States economy.  Ever since then, there has been some growth, although insufficient to restore the economy to full employment.  An additional perspective which matters more to working people is the employment-population ratio represented by the next graph.

The graph shows the civilian employment-population ratio.  That ratio is the percent of the population that is employed, by the definition of the Bureau of Labor Statistics.  As pundits would likely put it, there is a "jobs crisis" in the nation.  The primary cause is simple enough, insufficient aggregate demand.  In other words, there is just not enough spending.  The result is plain: there are plenty of people out there who want a job, but there are not enough jobs to be had.

Some commentators make use of the term "recovery" to describe what is happening in the United States, but the truth is, to many people who want a job, there is no recovery.  The whole economy is depressed; it may be growing, but not enough to put all those Americans who want a job back to work.

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