[quote=davelj]
As you know, EconProf, GDP=C+I+G+netX. As we’re paying down the mountain of debt we’ve got, C & I must, by mathematical definition, suffer. And eventually G will suffer too. [/quote]
By definition, imports contribute negatively to GDP. So we could reduce our imports, use dollars we save to pay off foreign creditors, and reduce debt while rasing GDP. There’s no law that says that debt can’t be paid off without a significant negative impact on GDP.
Secondly, there’s no law that says that our current level of debt is so unsustainable that it must be paid off ASAP. Including latest stimulus borrowing, federal debt is something like 10 months of GDP, if I’m not mistaken. Many foreign countries are far higher than that.
Ultimately, GDP growth is all about efficiency and full utilization rather than green paper and electronic transfers. C+I+G+… is just an accounting identity. 10 million working-age adults sitting on their asses watching TV all day = bad. Learning to staff each Burger King with one fewer employee, managing to serve the same number of customers = good. There’s no reason why we can’t achieve full utilization of human resources (5% unemployment) and continue rising efficiency (output per hour of labor), all the while paying off debt. At the present time we have a big “output gap” due to the fact that unemployment is about 5% higher than normal, and many people are idle when they could have been working on useful stuff and contributing to GDP. One of Grant’s points is that, after the end of the recession, this gap will likely contract (there’s always demand for willing & able workers in a normal economy) and its contraction will lead to above-average GDP growth rate in the short run. Cumulative growth of 6% in the next 12 months is a reasonable prospect.
Beyond that, we’re back in the usual efficiency game, where 2%/year growth, give or take, can be expected. That’s where government policies come in. Generally speaking, you can expect higher efficiency from healthier and more educated population. For some, that would be a good argument in favor of universal healthcare and taxpayer-assisted free higher education.
