Sunday, July 3, 2011

"Nominal GDP grew at a 5% rate for most of recent history."

So says Lewis.

What says FRED?

FRED agrees.


Clonal said...

Art, now correlate the nominal growth rate with income inequlity, represented by the income share of the top 1%.

See "Income Inequality in the United States, 1913-1998"

The Arthurian said...

I am familiar with the Saez graph. My son Jerry brought it to my attention, actually... twice before it "took". But I don't see any similarity between the Saez graph and nominal GDP growth.

I guess I don't get your point here.

Clonal said...

If you smooth the GDP growth rates. Let us say using a 4 year moving average. You will find that there is a high negative correlation between nominal gdp growth rates and the income of the top 1%. This correlation is not there when real gdp is used. This leads me to believe that gdp growth is used to service the debt and Wall St. first, and then if anything is left over, it goes to Main St. In this scenario, low inflation periods, coupled with high interest rates relative to inflation lead to real income shifting upwards, and from Main St. to Wall St.

Clonal said...

Also over the same period, the real growth has been flat at 3.2% with a very slight negative trend, quite unlike the nominal growth.

The population growth rate over the same period has been 1.2%

Jazzbumpa said...

According to nominal data, the late 70's were the best time ever.

This does not coincide with my memories.

As Clonal points out, the trend in GDP growth is down. This has been generally true since the mid 60's.

Our chances of reaching 5% nominal in this low inflation, job killing environment are exactly nil.

Cheers - or somethin'

Clonal said...

My preliminary analysis seems to indicate that increase in wealth inequality precedes the decline in growth, and vice versa.

Therefore, I think that relying upon growth to decrease wealth and income disparities is a fantasm.

The Arthurian said...

Oh, now this is serious.

Saez shows a definite distinct change in the trend of income inequality, as of 1979. A wee tad early, but I call that change Reaganomics. A change in policy.

Reaganomics arose in response to the problems growing up around Keynesianism; in particular, inflation. The Keynesians embraced the Phillips curve trade-off of inflation and unemployment. Reaganomics rejected that trade-off and (ironically) has ever since suppressed inflation by keeping unemployment high and growth low.

I do not think this little history fits your view "that increase in wealth inequality precedes the decline in growth."

I do not "rely upon growth to decrease wealth and income disparities." I look for a cause of the decline of growth. Or, rather, I look for a cause of the shifting of the Phillips curve, so that for a given level of inflation more unemployment is required now than in the 1960s or in the late 1990s.

I think it is a conclusion to say that decreasing wealth and income disparities will solve anything. I can easily reach the same conclusion. But one does not begin with conclusions. One begins with the original problem.

Clonal said...

The data clearly shows a 8 to 16 Q lag between income transfer and growth. In other words, the income transfer appears to precede the change in growth. At least that is what the numbers appear to show.

The analysis is complicated, by my attempts to reduce the cyclical component of the growth rates, but the numbers are fairly clear about the lag.

BTW, 1983 is when the impact of the Reagan policies really started to be felt. Up to 1981 was all Carter.

Real growth rate trends appear to have peaked around 1968-69. At least that is what the numbers seem to show to me.

The Arthurian said...

There is something called a Hodrick-Prescott filter, used "to separate the cyclical component of a time series from raw data." I don't know where to get it or how it works. But maybe you've seen it.

Some pretty interesting stuff you describe, there.

If the real growth rate (note my use of ALL the words) trends peak around 1968-69, and there is a 2- to 4-year lag, then you're looking at data from the mid-1960s at least. I'm wondering how far back the numbers go, that you are looking at.

And you attribute the decline in growth to the increase in wealth inequality, which would have started in the mid-60s.

I've not spend any time looking at inequality, and only looked briefly at the Saez graph, so take this for what it's worth...
The Saez graph refers to *income* inequality and it looks like the trend change comes at 1979. Maybe changing growth rates would affect that, hiding an earlier change?

Also, do you distinguish between wealth and income? (me: wealth generates income. The eggs are income; the golden goose is wealth.)

One more thing: To the extent that the wealth you study takes the form of financial assets, you and I are talking about different aspects of the same thing: debt.

Clonal said...

If we assume, a 16Q lag between income inequality and decline in growth, then something happened in 1964-1965 that increased income inequality. If we look, 1964, top income tax brackets were reduced from 91% to 77 % and then in 1965 to 70%. See Historical Top Tax Rate

I believe the causality goes from income to savings to decline in growth. It is the old propensity to save vs propensity to consume thingy.

Wealth accumulation occurs because of two different human "weaknesses."

First weakness is a desire to "gamble" - ergo a "zero sum" game, leading to a wealth accumulation pattern characterized by the Boltzmann-Gibbs distribution.

The second weakness is a desire to "Seek a free lunch" - ergo unearned income, rent seeking activity, "Let your money work for you" or "I shall not eat my food by the sweat of my brow!" This leads to wealth accumulation characterized the Pareto Gibbs distribution. This phenomenon also leads to the inter-generational accumulation of wealth.