Wednesday, April 03, 2013

The Golden Age of Macro Surrealism

Lebron von Strauss helpfully directed me to this blog, where we find the claim that (their version of) potential real GDP is below current real GDP.

Just like that, problem solved. Hey Paul, Mark & Brad: look at the chart. We are above potential!


(clic the pic to better see that the economy has actually been above potential for 2 years now!)

Before you scoff, you should know there's a method to this madness:

When capacity utilization is above effective labor share, ED potential real GDP will be below real GDP. When capacity utilization is below effective labor share, ED potential real GDP will be above real GDP.

Say what?????

People, I didn't say it was a reasonable method, did I?

Further following his muse, the inspired blogger busts out this gem:

The path forward may not be a matter of raising real GDP, but of raising potential real GDP.

I guess this could be epic trolling, but I prefer to think of it as the epitome of Dali-onomics.

Given that the guy calls his measure "ED potential real GDP", I think we all know how to raise it, no?


Anonymous said...

You may need to read more of the equations and look at more of the graphs.
Obviously at first glance it seems crazy...

Anonymous said...

He posts a reasonable explanation of why potential real GDP has dropped. He says something like the potential real GDP was distorted by 12 years of bubbles. He could be right... Can I add the link?