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Econintersect: Every day our editors collect the most interesting things they find from around the internet and present a summary "reading list" which will include very brief summaries of why each item has gotten our attention. Suggestions from readers for "reading list" items are gratefully reviewed, although sometimes space limits the number included.
Today there are 13 articles discussed 'behind the wall'.
The last four involve an extended discussion of some very unhelpful assertions by others that can be criticized for being incomplete and based on unstated assumptions that do not apply to the current economy.
The last four articles discussed start with two that have some serious shortcomings and use the second two too supplement the discussion we develop. We may expand on this topic and write a more complete work-up as an article. Input from readers would be appreciated with comments on what we have here.
As far as the Krumm argument goes one might infer that $1.2 trillion was "wasted", "lost", "unaccounted for", "evaporated" or chose any other similarly nebulous term. The argument is incomplete without some discussion of what might have happened to the money.
Econintersect is not privy to a secret cash flow statement so we can only offer some suggestions. First, the closest we can come to the debt increase shown is from the total for 2011 plus 2012 which is $2,516 billion, according to the Office of the Management of the Budget. Perhaps Krumm was using an eight quarter period that was not two fiscal years. But the difference between $2.4 trillion and $2.5 trillion is insignificant compared to the missing $1.2 trillion.
The value shown for GDP increase corresponds to 2Q 2011 to 2Q 2013 so this may relate to the interval for which the total of deficits was estimated.
Therefore we will look at where the missing money might be found on the nation's balance sheet looking at changes from 30 June 2011 to 30 June 2013. Using the data in the second and third articles below, there was an increase in home equity over the two years 2012 and 2013 of $4.1 trillion. The second half of 2011 prices declined by about 3% and in the second half of 2013 by about 4% (Case-Shiller National Home Price Index) so the change for the period 30 June 2011 to 30 June 2013 is about $4 trillion.
Very little of that was from new homes. In 2012 368,000 new homes were built with an average sales price of $292k, for a total value of $107 billion. There were more homes in 2013 so there is another factor for GDP between $11 billion and $200 billion. So one place that "lost money" might have gone was into a balance sheet item of net home equity. Only the $200 billion or so for new homes (as well as money spent on home improvements) would show in GDP. Certainly more than $3 trillion in home owner balance sheet improvement has occurred. We cannot show a cash flow sheet that demonstrates the connection between deficit spending and this asset "inflation" but it is a possibility.
Switching gears, in 2011 the U.S. stock market capitalization increased by $3 trillion. In 2012 there was little change and in 2013 an increase of $4.8 trillion. A rough estimate for equity appreciation would then be about half of the total for 2011 plus 2013 (eliminating half of each year and including a flat 2012) or about $3.9 trillion.
So what has happened is that deficits have only contributed about half to things measured by GDP but have created other economic activity. Two possibilities are rising values for homes and stocks. These two balance sheet items have increased by close to $9 trillion over the same time that Krumm has "lost" $1.2 trillion. If we could "follow the money" (cash flow) then we would have a multiplier of 0.5 for GDP items but 4.5 for GDP + balance sheet items.
In the second article below it is seen that over the same eight quarters discussed here, total net worth of households and private nonprofits increased by about $11 trillion.
Of course, we now need to face the debate about whether that is a good thing or bad. It involves a discussion of possible bubbles. We leave that for another day.
Otherwise he misses the boat. The points that require one or the other of the above conditions are emphasized:
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