Since GDP isn’t that qualified to tell this then how?
Right now, is our economy in a recession and if so what evidence is there?
Someone who I am talking with is saying the economy is growing, but I just don’t see how that can be with major housing loan failures and less purchasing power of the dollar.
This is a good question. I’ve always wondered why people were concerned whether the economy in the aggregate is growing or shrinking. What would seem more relevant to me is anecdotal evidence in your or my own standard of living, our wages, our property values, our purchasing power.
This person you are talking to, likely does not understand GDP. That measure is susceptible to the broken window fallacy.
Check out this recent forum. One user thinks it has to do with the True Money Supply.
Real GDP is the best method currently used to measure economic growth. However, one problem with it is that it excludes capital depreciation as well as economic goods and services given out for free or bartered (i.e. volunteer work, gifts).
There’s also Reisman’s/Skousen’s measures…
-Jon
Are they being used currently to measure economic growth?
Yeah, IIRC they can be used to compute it. They intend to use the measures as a substitute for GDP.
-Jon
^ But did they actually use it yet or no? I’d be interested at looking at the data, if possible.
No idea. I think they might have, I haven’t read all their articles on the topic. Ask one of them? Reisman has written an article estimating how much of economic activity is constituted by production, but it’s not quantitatively rigorous as the article is mostly for the purpose of showing how Keynesian determination of GDP fails.
-Jon
Hey now, is this meant to make fun of me? 
By the way, I stated that TMS is a sufficient, not a necessary, condition. That is the relation I pointed to show go down if there’s a recession, but it’s not a full-fledged indicator of a recession.
Do you feel that you are getting wealthier or poorer? Do you feel that people around you are as well?
That is the only true measure of economic growth.
Heheheheh [:P]. We didn’t actually resolve the issue anyway.
I liked this calculation of real GDP that I made. If you use M2 or gold as your inflation index instead of the CPI, then the picture of the US economy is truly bleak. The problem with “Real GDP” is that the CPI vastly understates inflation. This means that money supply inflation is misreported as economic growth.
Some people say that GDP itself is a totally meaningless statistic. For example, government spending counts as part of GDP. Purely parasitic industries like banking and lawyers count towards GDP.
Additionally, black market activity is also part of “The Economy”, though generally totally unacknowledged, and is not factored in by any calculation I’ve seen. And there are also household economies which are not factored in. Saw an interesting article in Barron’s today:
What I thought interesting was the point, which has also been made strenuously by JH Kunstler, that America does not generate a whole helluva lot that is of ‘real’ value. Playing electronic games with the derivatives market to generate ‘value’ from virtual financial instruments somehow seems vastly different to me than manufacturing widgets. I have no idea how one would model the value of one vs the value of the other, but it simply seems to me like we’re missing something big if we consider $100M worth of value which is generated by what seems to be financial chicanery (e.g., buying up mortgages and generating fees from packaging up and selling them) to be the same as $100M worth of value where real assets and real production are involved. I can’t shake the notion that the former is illusory and the latter real. Perhaps this is just my perception, subjective as that may be.
The financial industry is purely parasitic and produces no useful goods or services. Financial industry profits are paid by everyone else as inflation.
When your money loses 20%-30% of its value each year, where do you think that goes? It doesn’t vanish into thin air. The financial industry claims that as profit.
Some of the proceeds of inflation are claimed by the Federal government via deficit spending. The vast majority of the proceeds of inflation accrue to the financial industry.
I think that’s right, fsk. I suppose this is why the money supply must be factored into any overall metric of ‘the economy’, since otherwise, it shows up as a net gain for GDP - just like government spending.
BTW, anyone who has not read Albert Jay Nock’s ‘Our Enemy, the State’ should do so, since this explains quite clearly that the US State was explicitly structured for the purpose of enabling precisely this sort of exploitative behavior. It’s always amusing when people profess dismay that the State is acting in accord with its design and its nature. The State is not a fuzzy stuffed teddy bear - it’s a real grizzly. This so very difficult for so many to grasp…
I hate to be the Devil’s advocate here, but government spending should be factored into GDP. Government spending gives people work, builds things like roads, and provides incentives for various other actions. It might not be the most efficient way to use money, but it is money that’s being used and therefore at least in some way improving livelihood.
As for GDP being controlled for inflation: it is already. Controlling it for M2 is a misnomer, since money supply and inflation don’t always grow by the same percent. For example, M2 might grow by 10% when in reality inflation grows 7%. Sometimes, you might have inflation exceeding monetary supply growth in the case of cost-push inflation or supply shocks.
Here is a good graph showing the CPI gathered by shadow stats compared to M2 and M3:
As for gold, you shouldn’t use it as a way to measure money supply growth or inflation in general. Gold is just one commodity that varies according to supply and demand. Using the same logic, you might want to use wheat or barley as your inflation stick. Although it can give you a general picture, it won’t be accurate. For example, the price of gold and other industrially used commodities greatly relies on the boom-bust cycle. When in the price of gold fell in the early 80s and then again in the early 90s, do you really think we had deflation and/or monetary contraction? No, we had positive inflation and a growing money supply, bust cycles simply sent the price of gold and many other industrial commodities down.
In which case one is dealing with a misnomer. Inflation is strictly the expansion of the money supply in excess of demand for it. Cost-push inflation &c. result from scarcity, and will result in less money being spent on the scarcer good, or otherwise goods in competition with it. Inflation is a monetary phenomenon, not a real one.
-Jon
I was speaking of price inflation, not monetary expansion.
Hm, but inflation isn’t a good word for what you mean. The supply of something can inflate, given that it’s a stock. Prices however do not inflate, they rise or fall. I think it’s better to speak of price increases only - reserving the adjective “inflationary” for those caused by actual inflation.
-Jon