Without An Economic Recovery Plan, America Would Lose More Than $8,800 In Potential GDP Per Person
Without An Economic Recovery Plan, America Would Lose More Than $8,800 In Potential GDP Per Person
The impending American Recovery and Reinvestment Act is President Obama’s first step towards closing the current gap between what America is producing and what it could be producing. Without his recovery plan, CBO estimates that the United States’ GDP gap will yawn to $2.7 trillion from 2009 to 2011. That’s more than $8,800 in potential GDP for every man woman and child in America.
The ‘GDP gap‘ represents workers who want to work but can’t find a job, businesses who are reluctant to hire new employees, land being put to sub-optimal use, and banks and credit institutions who accumulate money instead of lending it out. It’s wages gone unearned, profits unmade and revenues uncollected.
The CBO projects that the above shortfall “would be the largest — in terms of both length and depth — since the Depression of the 1930s.”
But a sizable stimulus package, such as the American Recovery and Reinvestment Act, is only the first step towards closing this gap. The banking system must be flushed of bad or unpriced assets clogging up the credit markets and the collapsing housing market must be supported to help worthy families stay in their homes and prevent a vicious cycle of land depreciation and neighborhood devastation.
Going forward, to evaluate progress towards recovery, politicians, policymakers and citizens should take care to mind the gap.
One Response to “Without An Economic Recovery Plan, America Would Lose More Than $8,800 In Potential GDP Per Person”
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OK, but what does that actually mean? The Porkulus Plan would prop up the economy by introducing artificial, government demand to meet underutilized productive capacity, but at some point you wind up having to pay for it. Not only do you have to take future productivity and put it into paying off the $800 billion in new T-Bills, but by increasing interest rates — we’ve gone from a $455 billion deficit in FY2008 to over a trillion in FY2009, and that’s before you factor in the Porkulus Plan, and all that borrowing will increase interest rates — you put the brakes on new private investment, as credit becomes both more scarce and more expensive, which means that future demand from the private sector will be depressed.
We will have pain from this recession; we can have it mow, and get it over with, or we can have it later, almost certainly much worse.
February 15th, 2009 at 1:46 pm