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Home Publications Blogs Beat the Press GDP Growth Remains Below Potential Growth

GDP Growth Remains Below Potential Growth

Thursday, 18 July 2013 04:33

The NYT piece discussing Federal Reserve Board Chairman Ben Bernanke's testimony before the House Financial Services Committee noted at one point the Fed's assessment that growth is proceeding at a "modest to moderate pace." It would have been worth noting that growth has been less than 2.0 percent for the last three years and is likely to remain below 2.0 percent at least for 2013.

This is below standard estimates of the economy's potential growth rate, which is put at 2.2 percent to 2.4 percent. In other words, the economy is falling further behind its potential level of output at the current pace of growth. It would have been worth including the comparison to potential growth.

Comments (2)Add Comment
Potential has a constraint
written by Edward Lambert, July 18, 2013 1:16
Getting potential real GDP correct is extremely important. I put it to you that pot. real GDP is actually below real GDP at this moment. I determine this using a model of past data. Here is a link to the determination based on capital utilization moving around a labor share constraint.

I "believe" that I am right. and so far real GDP is tracking perfectly with my determination. if I am ultimately right, economists are going to be scrambling for answers. The answer is simple. Lower labor share of income has lowered the constraint on capital utilization and thus lowered the "true" potential of real GDP.
We are living through unusual economic times. The bubble popped and labor share has fallen to levels not seen in a very very long time. Economists don't quite understand that we are in a different economic reality. Constraints never seen before are now influencing the economy and it appears economists are being frustrated by these constraints that they can't see, and can't coherently acknowledge yet either.
My work in effective demand is revealing the constraints.
Redo of link in previous comment
written by Edward Lambert, July 18, 2013 1:23
Link to different determination of potential real GDP.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.