Wednesday, September 12, 2012

The Economic Engine: Is It Fixed?

If our car had a busted transmission, we base whether to call it fixed by how it responds when it's in drive and we press on the gas. Does it go forward when we apply gas? Does it go faster when we apply more gas? If so, then it's fixed ... even when it happens to be going slower on the on-ramp than it was when the transmission first broke on the highway.
chart of private payrolls (all employees: total private industries) from February 2009 through August 2012

We don't base whether to call it fixed on its speed at the moment or how full its gas tank is. That'd be ridiculous.

Right now the Republican House is pulling back on our foot ... keeping us from putting the pedal to the metal. The Fed Chairman filled the tank with monetary measures. The President didn't even try to floor it, but he's tried to apply a bit more gas than the current House is letting him apply with fiscal measures. The 111th Congress was applying more gas than the 112th Congress is applying.

We could be going faster if we applied more gas. That we're not putting the pedal to the metal doesn't mean the car isn't fixed.

CBO Real Gross Domestic Product slide showing output gap; from

Given the output gap between actual and potential GDP, we're driving below the speed limit. The potential GDP is the speed limit. Any faster than that and we're liable to be pulled over and get a ticket. But we could be going faster. There's a good bit of room to step on the gas and get ourselves up to speed. That would require the House to stop holding us back from applying the gas it'd take to get up to speed.


  1. Busted transmission? Well, it depends on how it was busted. Some can't shift accurately, and some can't shift on reverse because of a snapped shift cable. If things like these happens, it would be best to have the transmission replaced with a new one.
    - Jae Gunderson

  2. Cars can be quite complicated and yet, must be handled with care. This is why it's very important for a car to be well-maintained. Otherwise, it will be troublesome if the car is used in its rugged condition.
    - Stelle Courney