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Thursday, August 04, 2016

A "Gotcha" moment, not an analytical moment

On the Marginal Revolution blog today, Tyler Cowen posts a link, with this header
2. Consumption as a percentage of gdp has increased with inequality (ahem).
The link is not to a piece of analysis, but to a twitter feed. 

Well, that’s not a very interesting observation, now is it? Because GDP shares are constrained to sum to 100%, if one component of GDP is decreasing as a percentage of GDP, some other component has to be increasing. We might as well point out that government investment and consumption expenditures have been falling as a % of GDP as income inequality has been rising.
We might also point out that investment spending has been rising as a of GDP (with sharp downturns during recessions) since 1970–up from about 12.5% in 1970 to around 16.5% now (investment’s share of GDP is up by 30%–4%/12.5%–since 1970)–and that’s after investment spending has been depressed by two recessions in the past 16 years. Consumption’s share is up from 61.2% in 1970 o 69.3% in 2016–a 15% increase. The investment share of DDP has increased twice as fast (in percentage terms) as the consumption share.

So C+I as a % of GDP is up from 75% of GDP to 86% of GDP as inequality has been increasing–and would be even higher but for the failure of I to recover significantly. Does this tell us anything meaningful? If so, what? All this is, is a “gotcha” moment, not an analytical moment.


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