The State of the Economy, II
I don’t think yesterday’s GDP report matters. Historically, cyclical movements in GDP are just blips. It is the long-run trend of productivity that matters.
This news from Scott Shane might be disturbing.
The self-employment rate is now below pre-recession levels. Moreover, those self-employed who have managed to remain in business have had to reduce their work hours.
In fact, an increasing number of small business owners would shift back to working for someone else if they could. The Discover Card Small Business Watch, a survey of small business owners, indicates an increase from 2007 to 2009 in the number of business owners who would discontinue their business operations if offered a high-paying job.
If that were a temporary phenomenon, I would not be worried. But one cannot rule out the possibility that Welsey Mouch is now running the economy, with long-term adverse consequences for entrepreneurship.
In any event, if you’re trying to keep score on the economy, I think that small business formation is a much more important indicator than GDP.
[UPDATE] Scott Sumner is priceless.
The 3rd quarter was another huge disappointment. NGDP [nominal GDP, which includes (very little) inflation] grew at a 4.2% pace. Not only was it too slow to return us to trend, but we fell even further behind… Yes, we got some real growth for a change, but only because wage cuts are shifting SRAS [short-run aggregate supply] to the right. You econ teachers out there might want to think about this fact: You know when you teach the options for recovering from a recession? One option is for the government to do nothing, just wait for SRAS to shift right. The self-correcting mechanism. Well that is what is happening now