Over at Equitable Growth: Is There Really a Profits-Investment Disconnect?: (Late) Friday Focus for October 24, 2014 by DeLong
As a result of the housing bubble, the mortgage frauds, the attempts at regulatory arbitrage on their balance sheets by the money-center universal banks, the financial crisis, et sequelae, U.S. real GDP today is now 12% below what we back in 2007 expected it to be now. Since the post financial-crisis trough U.S. real economic growth has proceeded at 2.24%/year, compared to the 3.00%/year growth rate we saw between 1990 and 2007.
So far there are no signs anywhere that the gap between today and the pre-2007 trend in levels will be made up. So far there are no signs anywhere that the gap between today and the pre-2007 trend in growth rates will be made up.
That means that, come 2024 a decade hence, we can now expect a U.S. economy to be 19.5% smaller than the economy we confidently projected as of 2007 we would have.
And, with a capital-output ratio of roughly 3, that means that between 2007 and 2024 cumulative net investment will be lower than projected back in 2007 by 58.5%-point years of GDP--and cumulative gross investment considerably lower.
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