The Oil Drum

24 comments on Driving Recessions

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westexas on October 23, 2005 - 3:44pm

Another interesting plot is total public and private debt as a percentage of GDP. I only have a hard copy of the plot, but the previous peak (294%) was in 1934, in the depths of the Great Depression. Note that since this is a ratio, it goes up if either debt increases or GDP falls. The previous peak in 1934 was due to the collapse of GDP.

The ratio fell back to about 150% or so by 1980, but since then it has exploded to about 304% currently. Imagine what would happen to the debt to GDP ratio in a severe recession or depression.

Also consider the quality of the GDP in 1934 versus 2005. Today, the majority of Americans live off the discretionary income of other Americans. In 1934, probably about 5%, certainly no more than 10%, of Americans lived off the discretionary income of other Americans.

At least in terms of GDP per capita, another way to put it is that the majority of U.S. GDP is an illusion. We use vast amounts of energy in zero sum games that are basically transfer payments. For example, instead of traveling to Las Vegas for a weekend, you could just mail them a couple of thousand dollars, and it would have the same economic impact. Let me put it another way. Would anyone really have noticed if the infrastructure in Las Vegas and Orlando disappeared overnight? Compare that to the nationwide effects of Katrina and Rita on Gulf Coast and GOM infrastructure.

Soon, we are going to have to choose between saving jobs and saving energy. Do we continue to use energy on leisure cruises to nowhere when some people in the Northeast may be literally freezing to death in the dark?

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ericy on October 24, 2005 - 9:30am

The people in Las Vegas would certainly notice if their infrastructure were to disappear overnight. Snark aside, I do see your point. Another aspect of this is travel and leisure. Years ago, people would travel much shorter distances for their vacations - maybe stay in a cabin by a lake or something. When I was a kid, we did a lot of camping. These days they travel - either to Vegas, Florida, or some other beach resort. For that matter, the cruise industry has managed to bring costs down to the point where they have become affordable to the masses.

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Stuart Staniford on October 24, 2005 - 12:50pm

I have to disagree with you here. The bulk of GDP is extremely tangible - it's houses and cars and restaurants and hospitals. Increasing real GDP is roughly speaking, bigger houses and cars (which we indeed have). You may disapprove of it, but there's nothing illusory about it.