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1. GDP SOURCE AS AN INDICATOR OF ECONOMIC HEALTH

Stephen Brokaw, David F. Brokaw, Shenghan Xu

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Abstract

GDP has long been seen as an indicator of economic health. A rising GDP is interpreted as being a sign of health, while a declining GDP is viewed as a sign of recession. Using the Instability Hypothesis of Minsky, coupled with a new understanding of consumer debt from Cynamon and Fazzari, this paper examines the roll of debt in GDP. By examining the source of GDP (equity versus debt), coupled with an evaluation of the degree to which the nature of the debt is speculative, it is possible to identify when an economy may be entering an inflationary cycle as predicted by Minsky. A rising GDP is found to not be a robust measure of economic health.

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What this paper is about

GDP has long been seen as an indicator of economic health. A rising GDP is interpreted as being a sign of health, while a declining GDP is viewed as a sign of recession. Using the Instability Hypothesis of Minsky, coupled with a new understanding of consumer debt from Cynamon and Fazzari, this paper examines the roll of debt in GDP. By examining the source of GDP (equity versus debt), coupled with an evaluation of the degree to which the nature of the debt is speculative, it is possible to identify when an economy may be entering an inflationary cycle as predicted by Minsky. A rising GDP is found to not be a robust measure of economic health.

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Available abstract

GDP has long been seen as an indicator of economic health. A rising GDP is interpreted as being a sign of health, while a declining GDP is viewed as a sign of recession. Using the Instability Hypothesis of Minsky, coupled with a new understanding of consumer debt from Cynamon and Fazzari, this paper examines the roll of debt in GDP. By examining the source of GDP (equity versus debt), coupled with an evaluation of the degree to which the nature of the debt is speculative, it is possible to identify when an economy may be entering an inflationary cycle as predicted by Minsky. A rising GDP is found to not be a robust measure of economic health.

Key concepts: Economics, Recession, Real gross domestic product, Debt, Monetary economics, Business cycle, GDP deflator, Economic indicator

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