Tuesday, January 24, 2012

2012 Economic Forecast Conference

Okay, now that I've figured out how to get back into my own blog...

This year's Economic Forecast Conference, hosted by my office, the Center for Economic Development, was a bigger event than ever.  I'm really proud of my co-workers for organizing it (I wish I could take any credit for that) and of my community for getting behind it!

I got a lot out of the conference this year and I promised to write about it, but unless you want to read another blog thesis, I'll limit the post to my response to one comment from one of the presenters.  If you want to know what other kinds of neat things we learn at this conference, you'll have to come on down next year.  :)

So, the comment that kept sticking in my craw was uttered by the Federal Reserve economist, Dr. Gary Zimmerman.  Now, Gary's been doing this kind of stuff for some time and passing thoughts on his part can me major revelations on ours.  The comment had a lot to do with macroeconomics, which is something I don't promise to get into very often, but it also has to do with economic measurement (data!!!).

The comment that got to me?  Dr. Zimmerman mentioned, somewhat in passing, that ending unemployment benefit extensions are likely to hurt the economy.  Now, I've heard much of the political back and forth about unemployment and don't look for me to get into any of that here, but I had two competing reactions to this:

Reaction 1:  "Oh my gosh, he's right!"
Reaction 2:  "Oh my gosh, that's sad!"

It's right because if we stop unemployment insurance payments, that is income that would go away and not be replaced by anything else.  That leads to the sad part - we're propping our economic growth with deficit spending.  I mean, that's like me taking $10,000 in credit cards and telling people I got a raise -- but in the odd accounting of GDP, that's exactly how this works.  Money is borrowed to pay for unemployment (and other) benefits, which in turn becomes income for the recipient.  The recipient spends the money and it becomes income for someone else, etc., etc.  Except for one little problem - the government has to pay that money back, somehow and sometime.   Until it does, the debt accrues interest, and that just makes this borrowed money more expensive.

The larger issues this brings up is: our GDP growth is not discounted by the amount the federal government goes into debt to support it.  Well, heck -- that means we just have to go further into debt to grow our economy, right?  But it seems to be it would be more accurate to discount deficit government spending from the GDP.  That's where the data comes in!  We have other adjustments to GDP like the GPI and the GNH, why not one that more realistically measures economic growth corrected for deficit spending to support it?

Hmmm.  New data to analyze.  Yeah, that'll work.

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