Hmm. Dave, you have brought up a great point for debate. I agree with you that we are experiencing some growth due to the Fed actions in money supply. However, you have to look at several factors contributing to growth to see if it's sustainable or not. Are we experiencing inflation? Not yet. In fact, most economists fear deflation more than inflation right now. So that is one indicator that the growth we have is largely sustainable at the 2-3% level for now. The excess growth up to the 6% level was probably due to 1) inventory restocking from depleted levels and 2) 0% financing deals by car companies and others. That excess growth is probably not sustainable. So still I see sustainable growth, at least at low levels adjusted for inflation.
As far as your assertion that our GDP growth is not perpetual, I'm not entirely sure that is correct. In 1929, the GDP in today's dollars (meaning adjust for inflation) was $103.7 billion. Then GDP in 2001 was $10,253.2 billion. When you look at the rolling average growth rate, it has been positive. So the question is did GDP growth outpace inflation over that same period, assuming that inflation is caused primarily from devaluation of the dollar by the Fed and by outside forces? It appears so. In addition, if you look at the overall standard of living in the U.S., it is higher than it was in 1929. So the indications are that GDP growth is perpetual. I would be interested in seeing the money supply growth rate over that same period of time. That would give us more fodder for debate.
Anyway, theoretically speaking, I think that as long as the human race continues to expand in terms of population and as long as our race continues to innovate in business and technology, these macro factors alone will drive economic growth net of inflation. If those macro factors reverse themselves, say due to an external shock like a nuclear war, then we could have a serious long term disruption in net adjusted GDP growth. Otherwise, it sure does look and feel like perpetual growth. |
