Coulda been worse? Sure, but why wasn´t it? And why Australia did best

Krugman has a post entitled “More coulda been worse blogging” which features this single chart:

But we know, or should, that RGDP is the end game, the driver being aggregate spending, or NGDP, which throws out real output on the one hand and prices on the other. The more real output we get for a price level so much the better.

Why did the US generate more real output than the Eurozone? Logically, the US “drove aggregate spending” harder. And, “magically”, prices in the US rose less than in the Eurozone. But then, take stock of what went on in Australia. In terms of the end game – RGDP – it did best. It also had the highest rise in prices (all headline consumer price indices). But wouldn´t that (rather small difference, after taking into account that Australia did not experience a fall in prices) be worth the gains in real income and employment?

I bet the Aussies will say aye.

The charts illustrate:


3 thoughts on “Coulda been worse? Sure, but why wasn´t it? And why Australia did best

  1. Yes, but how much of this outcome is due to the commodity boom rather than better monetary policy in Australia? Mining and natural gas production have led the recovery there. Also, Australia has also benefitted tremendously from exporting to China, which has had a fairly strong recovery up until recently.

    • Joe
      The “components approach” to GDP analysis is very misleading and doesn´t really add anything. For example, like Australia Brazil beniffeted enourmously from the tremendous gains from trade due to commodity prices and exports to China, but MP was terrible and industrial production tanked!
      Furthermore, note that in the second half of 2008 and early 09, commodity prices tanked.

  2. Pingback: Coulda been worse? Sure, but why wasn´t it? And why Australia did best « Economics Info

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