In some contrast to spending or even ‘demand’, the economic problem is and has always been the lack of income growth. The difference in economy between income and spending is debt. As noted earlier, it was clear that the asset bubbles, based on debt via eurudollar expansion, created a boost in overall ‘demand’ as represented in GDP’s Real Final Sales to Domestic Purchasers. On the other side, income, particularly disposable income, we find that like the labor statistics the weakness or potential dislocation point was much earlier than the Great Recession (or Great Dislocation).
As usual, descriptions of the latest update for Personal Consumption Expenditures (for May 2016) and Personal Income liberally and incorrectly apply the word ‘strong.’ An example from Reuters:
Wednesday’s fairly strong report released by the Commerce Department pointed to an [sic] acceleration in economic growth in the second quarter.
The accounting fails both in relative comparison to prior periods where ‘strong’, fairly or not, would have been more appropriately applied and further the overall context of spending and income. DPI is about a quarterless than it should have been given a constant baseline tracing back decades. In other words, income growth for a very, very long time was rather consistent in its long run trend – until the start of the 21st century. Unlike spending, income began to underperform during the housing bubble, once again demonstrating the illusory effect of so much additional debt. It was never prosperity or successful economic policy, it was unbridled monetary expansion globally wreaking havoc.
This post was published at David Stockmans Contra Corner on June 29, 2016.
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