[PEN-L:29513] Re: PK on current events

[Michael Pollak <mpollak@xxxxxxxxx>]

On Fri, 16 Aug 2002, Paul Krugman was quoted as saying

<quote>

   Mind the Gap

   By PAUL KRUGMAN

   H ow much has Japan's economy shrunk since its bubble burst? It's a
   trick question; Japan's economy hasn't shrunk. It had only two down
   years over the past decade, and on average it grew 1 percent per year.
   Yet Japan's is a genuinely depressed economy. Because growth has been
   so slow, an ever-increasing gap has opened up between what the economy
   could produce and what it actually produces. This "output gap"
   translates into rising unemployment and accelerating deflation. Slow
   growth can be almost as big a problem as actual output decline.

   Now the non-trick question: What would a similar analysis say about
   the United States?

   The U.S. economy's "potential output" -- what it could produce at full
   employment -- has lately been growing at about 3.5 percent per year,
   thanks to the productivity surge that began in the mid-1990's. But
   according to the revised figures released a couple of weeks ago,
   actual growth has fallen short of potential for seven of the last
   eight quarters.

   The conventional view is that we had a brief, shallow recession last
   year, and that recovery has begun. But the output gap tells a
   different story: Two years ago we went into an economic funk, and it's
   not over. In a way the whole double-dip controversy is a red herring;
   the real question is when G.D.P. will start growing fast enough to
   narrow the output gap. And so far there's no sign of that happening.

<endquote>

How would one go about calculating this output gap from publicly available
figures?

Michael