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PeakTrader:

BC, without the Fed, there wouldn’t have been any growth at all over the past few years.

Lower interest rates and higher asset prices induce people to spend and borrow, and reduce saving, a lower cost of capital spurs production, refinancing at lower rates increases discretionary income, lower mortgage rates makes buying a home more affordable, 401(k)s and IRAs increase in value, etc. There are massive multiplier effects throughout the economy.

You can praise the Fed later.

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Hans, it’s not the Fed’s fault one foot has been on the accelerator and the other foot has been on the brake.

Without the Fed, this expensive recoverless recovery would be even worse.

Economists should control fiscal policy and all major economic policies in the macroeconomy rather than politicians.

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BC, a bubble is needed in a depression.

When the economy recovers, a bubble won’t be needed.

You can thank the Fed now and later.

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PeakTrader:

JBH, globalization, i.e. free trade, open markets, and unrestricted capital flows, has benefited the U.S. tremendously, in raising domestic consumption (e.g. more shopping malls), and in raising domestic production (e.g. in the Information and Biotech revolutions).

If a U.S. trading partner adopts an inferior economic policy, e.g. trade barriers or tariffs, that’s our gain. As a matter of fact, the gains in U.S. trade are larger than our trading partners “gains-in-trade.”

Globalization isn’t holding back U.S. growth. It shifted production from low-end manufacturing into high-end manufacturing and facilitated explosive growth in emerging industries, while we imported offshored goods at lower prices and higher profits.

The U.S. not only leads the world in the Information and Biotech revolutions, it leads the rest of the world combined, in both revenue and profit.

In manufacturing, the U.S. is the most productive in the world, producing more output with fewer inputs:

U.S. Manufacturing: Output vs. Jobs Since 1975
Jan 24, 2011

Since 1975, manufacturing output has more than doubled, while employment in the sector has decreased by 31%. While these American job losses are indeed sobering, they are not an indication of declining U.S. competitiveness. In fact, these statistics reveal that the average American manufacturer is over three times more productive today than they were in 1975.

Chart of U.S. manufacturing real output:

http://research.stlouisfed.org/fred2/series/OUTMS

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Here’s an article by the Fed:

Income Flows from U.S. Foreign Assets and Liabilities
Federal Reserve Bank of New York
November 14, 2012

Foreign investors placed roughly $1.0 trillion in U.S. assets in 2011, pushing the total value of their claims on the United States to $20.6 trillion. Over the same period, U.S. investors placed $0.5 trillion abroad, bringing total U.S. holdings of foreign assets to $16.4 trillion. One might expect that the large gap of -$4.2 trillion between U.S. assets and liabilities would come with a substantial servicing burden. Yet U.S. income receipts easily exceed payments abroad.

As we explain in this post, a key reason is that foreign investments in the United States are weighted toward interest-bearing assets currently paying a low rate of return while U.S. investments abroad are weighted toward multinationals’ foreign operations and other corporate claims earning a much higher rate of return.

U.S. investors earned a much higher rate of return on multinationals’ foreign operations and similar corporate holdings than did foreign investors here, 10.7 percent versus 5.8 percent, respectively.

The superior U.S. rate of return on FDI, as well as the greater tilt in U.S. foreign investments toward FDI, accounts for the $322 billion income surplus recorded in this category in 2011…The United States has earned a substantial premium on FDI investments at least since the 1960s.

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GDP is an incomplete and inaccurate measure of living standards. I stated before:

In the Keynesian consumption function (or identity), Y = C + I + G + NX; trade deficits, or negative net exports (NX), subtract from GDP growth, because consumption (C) is overstated.

For example, in a $10 trillion economy, a 5% one year increase in GDP expands the economy by $500 billion. Also, if imports are greater than exports, e.g. $1 trillion of imports and $600 billion of exports, then net imports are $400 billion in one year, which adds to our trading partners GDPs and subtracts from U.S. GDP. However, the total added to the U.S. economy is $900 billion ($500 billion from GDP growth in one year and $400 billion from net imports in one year), because the U.S. is consuming more than producing in the global economy.

It should be noted, with trade deficits, the U.S. exchanges dollars for foreign goods and foreigners exchange those dollars for U.S. Treasury bonds. However, the U.S. is able to maintain trade deficits in the long-run, mostly, because foreigners lose through changes or differences in inflation, interest rates, and currency exchange rates. For example, over the past few decades, the Japanese yen appreciated from 360 to 100 per dollar, which means Japan received fewer and fewer yen per dollar.

Also, to a lesser extent, many of those foreigners moved to the U.S., and foreign firms began producing in the U.S., because it’s better to use those dollars than exchange them for their currencies. Moreover, those foreigners can raise their standards of living by selling their assets, exchanging their currencies for dollars, and moving to the U.S., or attending a U.S. college. Furthermore, tourism (by foreigners in the U.S.) adds to U.S. exports.

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BC, U.S. real manufacturing output has more than doubled, since the 1970s, and it takes a much smaller workforce. That raises U.S. living standards.

What’s remarkable is the global share of U.S. manufacturing output has remained roughly constant at 20% for decades, although the huge U.S. trade deficits, in recent decades, raised our trading partner’s manufacturing output. So, U.S. manufacturing output had strong growth, e.g. from market power, while our trading partners had declining prices.

The only way to move from one economic revolution into the next is through efficiencies. The U.S. economy is the most efficient economy in the world, which is remarkable for a large country.

Also, I may add, the U.S. economy has become lighter, because goods produced in the Information and Biotech revolutions weigh very little, along with services.

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BC, I looked at your charts. They have no meaning that I can tell. What is it you’re trying to convey with those relationships?

This depression, since 2009, when the 2007-09 recession ended, is completely unnecessary.

Peak Oil is a constraint on economic growth. Nonetheless, the economy has the capacity to expand much faster than the past few years.

It should be noted, there’s a production boom in natural gas, with very low prices, that somewhat offsets higher oil prices.

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PeakTrader:

It’s not surprising politicians make unrealistic statements. However, it seems, Wisconsin’s economy is picking up:

http://www.biztimes.com/article/20140425/ENEWSLETTERS02/140429843/BMO-report:-Wisconsin-economy-gathers-steam

I can understand why Walker is anti-union. For example, if labor is partially unionized, then union workers will be overcompensated and non-union workers will be undercompensated (which has historically been the case) , and the disparity may be very large. So, it’s unfair.

If all labor is unionized, it may lead to lower quality, more complacency, and fewer incentives, or more disincentives. It’s also unfair, because workers tend to be paid based on seniority rather than performance, which is often discouraged.

I think, raising the minimum wage is a much better way to reduce income inequality.

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