I warned, back in December 2008, that regime uncertainty might pose a problem in the current crisis. As I saw it, the political classes were intent on blaming the markets. They certainly were not going to point their accusatory fingers at themselves, and neither were the world's central bankers.
Well, regime uncertainty still prevails and the U.S. economy, which is now being touted as one of the strongest, isn't so strong. The accompanying chart of nominal final sales to domestic purchasers (FSDP), which is the best proxy for aggregate demand, shows that FSDP is still rather anemic. Its current year-over year growth rate is only 3.9%, well below the long-run trend of 5%. So, the U.S. remains mired in a growth recession. Thanks to continued regime uncertainty and weak monetary growth — broad money (Divisia M4) is only growing at a 2.5% annual rate — the economy fails to lift off.
To better understand what's happened since 2008 and where we are going, nothing beats the ability to interpret and understand economic data in terms of patterns, relationships, connections, and structures that are likely to prevail in the future. Accurate topological patterns — in short, good diagrams — hold the keys to developing useful images of the future.
To that end, a series of diagrams that depict the U.S. economy are presented. The diagrams show the relationship between the unemployment rate and the gap between profit and interest.
This important, but neglected, relationship was first analyzed by my former professor, Kenneth Boulding (1910-1993). Here's how Boulding summarized the economics of the profit-interest gap in his last book, The Structure of the Modern Economy (New York University Press, 1993):
