It is all about GDP. In this article, the WSJ does a good job of explaining how each GDP component might solve our problems…or make them worse.
- Consumer Spending: The largest part of GDP, consumer spending has propelled recovery in the past. With oil prices declining and the Japanese supply chain no longer depleting auto inventories, spending could rise. On the other hand, you know unemployment, the debt crisis, and consumer confidence are eroding any tendency to spend.
- Investment: Business equipment purchases and profits have been robust. Looking ahead, though, housing remains weak and uncertainty seems to be building. As Keynes might have said, the requisite “animal spirits” might be diminishing.
- Government: Compared to the spike from stimulus dollars, state, federal and local government spending are going down.
- Trade: Yes, the weaker dollar should help exports. The question, though, is which healthy foreign economies will purchase our goods and services. We know the problems that the weaker euro zone nations and Japan have been experiencing.
The Economic Lesson
Where does this leave us? If you believe in Keynesian support for a troubled economy, you might suggest another stimulus that will sufficiently “prime the pump.” If your tendency is toward Adam Smith, then your policy is less government intervention because a steep trough in economic activity will ultimately lead to a healthy recovery.
An Economic Question: Based on whether you are a more government or less government person, express your policy suggestions for high unemployment (9.2%) and sluggish GDP growth (1.3%).