Re: [Pen-l] Re: Reality catches up with catastrophists

["Jim Devine" <jdevine03@xxxxxxxxx>]

me:
>> To really "inflate" the US economy, the FIRE
>> sector has to grow relative to GDP. Has that sector been rising
>> relative to GDP?

Julio:
> If FIRE (the level) is large relative to GDP (and it must be around
> 20%), deflating FIRE deflates the whole economy.

right, but what I said is that the upward trend in the FIRE sector may
not be as great as many suggest. Can we say that most of the growth of
the US economy was due to the growth of the FIRE? I don't know. I'd
need some sort of theory about the connections between FIRE and
non-FIRE sectors.

Julio later added: > I was referring here to the weight of the U.S.
economy in the global economy.

right: a key question is how important is FIRE in other countries. It
would likely be similar in England. Of course, the seeming melt-down
of US FIRE is hurting and will hurt the relative size of similar
sectors in most other countries. (Overnight, a bunch of CBs were
pumping liquidity into their financial markets...)

> FIRE has a lot to do
> with the state of the rest of the economy, as we are about to witness
> when the financial meltdown reacts back on the rest of the economy.

right. When FIRE freezes up, that means that the "real" economy can't
get credit, so that it freezes too. We're in for a big one (though
maybe not a Big One).

> The difference in growth rates matters, but over the longer run.

my spreadsheet says that if the longer run is defined as being from
1976 to 2006, the share of FIRE in GDP hasn't been rising. It's been
happening during shorter periods. The rise of the FIRE sector relative
to GDP happens toward the end of business-cycle upswings (up to 1982,
1998-2001, 2004-2006).
-- 
Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own
way and let people talk.) -- Karl, paraphrasing Dante.
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