Tag Archives: Latin America

The Two-Track Economy

The quick way to talk about how any economy is doing is in terms of “growth”.  This is just what it sounds – a measure of how much the total value of production in a country has increased in the last month, quarter, or year.

Thinking in terms of total production – more precisely, this is usually Gross Domestic Product, GDP – never tells you everything that you want to know, but it usually gives you a sense of the near term dynamics: are business prospects expanding or contracting; is unemployment going to rise further; and will people’s wages outpace or fall behind inflation? 

Seen in these terms, the balance of opinion on the near term outlook for the U.S. today has definitely shifted towards being more positive.  A number of prominent analysts have revised upwards their growth expectation for the second half of this year considerably – for example, the ever influential Goldman Sachs was recently expecting 1 percent growth (annualized), now they guess it will be closer to 3 percent.

“Potential” growth in the U.S. is generally considered to be between 2 and 3 percent per annum – this is how fast the economy can usually grow without causing inflation to increase.  So the Goldman swing in opinion is equivalent to switching from saying the second half of this year will be “miserable” to saying there will be a fairly strong recovery.

But at this stage in our economic boom-bust cycle, is it still helpful to think in terms of one aggregate measure of output?  Or are we seeing the emergence of a two-track economy: one bouncing back in a relatively healthy fashion, and the other really struggling? Continue reading