onurbius, another facet that is very interesting in connection with this trend is the fact that government's statistics minions are using 'hedonic pricing' in the calculation of their stats for GDP, productivity and inflation. the former two are thus overstated, the latter is understated. the effect is most pronounced when it comes to computers. e.g. in '98, they made 148 billion of "chained dollars" in computer investment growth out of 8,6 billion in "real dollars" (the actual year-on-year increase in computer investment spending).
the productivity data are similarly skewed...the one sector of the economy that shows by far the biggest productivity growth due to this statistical fallacy is computer manufacturing itself. if Dell cobbles together a PC with a twice as fast a processor and twice the memory of the previous model, its productivity is deemed to have roughly doubled, everything else being equal. thus computer manufacturing distorts the productivity data enormously. several recent studies of this phenomenon (most prominently Robert Gordon's) have come to the conclusion that productivity outside of PC manufacturing hasn't been growing at all, or at best at very anemic rates, depending on the sector.
the fallacy of hedonic pricing is of course easily exposed by common sense: let us assume you are now using a processor that is twice as fast as its predecessor and are typing a letter in MS word. has your productivity doubled? according to the government it has.
imo, if productivity and GDP growth are really influenced in a major way by an increase in computing power, it should be possible to measure this in REAL dollars...after all, if the increase in computing power enhances performance to the extent the government assumes with its hedonic pricing calculations, shouldn't this show up in real economic output? if it doesn't, the improvement can not possibly have occurred.
the problem this creates is that both the Fed and businessmen are effectively basing their decisions on fantasy data. this has led to a far too lax monetary policy over recent years, and enormous malinvestments in its wake.
we have experienced the typical credit induced crack-up boom as per Austrian theory. last year $5,30 in new credit were created for every $1 in (overstated) GDP growth. the expansion of private sector debt, the current account deficit and the asset bubble has assumed truly staggering proportions.
imo, the governments statistics games have a lot to do with that...present consumption and investment are not financed out of savings anymore, but purely on credit, and the Fed creates the money for this out of thin air due to the fiat monetary system that is the basis of the modern economy.
even if one is not familiar with Austrian economic theory, it can easily be seen that these growing imbalances are leading us ever closer to the cliff, where boom will turn into bust.
and similar to other bubble economies before it, this one is probably fated to suffer an epic bust when the time comes. the longer the boom continues, the bigger the bust will be, as the imbalances grow and grow until their natural limit is reached.
both households and corporations are now indebted like never before. debt in both absolute numbers and relative to equity, disposable income and GDP is at all time highs. at the same time the savings rate is at an all time low.
thus the big bust is not a question of if, but when.
people comparing today to '94 are conveniently overlooking these facts. this is NOT '94...like ATG says, a soft crash landing is coming... |
