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Dalio's rules for growth are good , but I'd add one more. He says :

1)Debt doesn't rise faster than incomes , i.e. , over the long haul , consolidated debt/gdp is stable. Since , IMO , debt loads are too high currently , ideally our debt/gdp should gradually decline to a less-burdensome level.

2)Income doesn't grow faster than productivity , i.e. economic growth should be non-inflationary.

3)Productivity should grow at a decent rate , i.e. innovation is a good thing and we should encourage it. If there are negative externalities to innovation , like job losses , we should correct them - for example by reducing work hours or through gov't jobs programs - rather than stifle such innovation.

The extra rule I'd add is this one :

4)Long-term , incomes should grow with productivity across the income distribution , i.e. minimum wages and median wages should rise at roughly the same rate as productivity , not just wages/incomes at the top. You still have incentives , as people can still move up and down the income distribution , and some will still get very rich , but you will maintain the purchasing power of consumers without relying on debt if this rule is followed.

Any economic program for growth should adhere to these rules. Since the crisis , we've failed to do so , with the possible exception of the debt/gdp rule. During the postwar "Golden Decades" we did a much better job.

Agreed... income should rise with productivity. The problem is productivity is demand constrained and won't rise under this condition. Effective demand has to start rising first.

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Data as of 3rdQ-2018
Effective Demand = $18.433 trillion
Real GDP = $18.671 trillion
Productive Capacity = $24.872 trillion
UT index is at effective demand limit = -0.92%
Effective demand limit = 74.1%
TFUR = 75.1%
ED Fed rate rule = 4.0%
Estimated Natural Real Interest rate = 2.3%
Short-term real interest rate = 2.8%

There is no recession for 3rdQ-2018. Chance of recession is growing as economy has now reached 2nd effective demand limit in this business cycle. I am forecasting that economic conditions will begin to contract in the second half of 2018.

Click on Graphs below to see updated data at FRED.

UT Index (measure of slack):

The UT Index



z derivatives in terms of labor & capital:

z derivatives in terms of labor & capital

Effective Demand, real GDP & Potential GDP:

ED, real GDP & pot rGDP

ED Output Gap:

ED Output gap

Corporate profit rate over real cost of money:

Corp profit rate over real cost of money

Exponential decay of Inflation:

Corporate profits impact Inflation

Measures of Inflation:

Measures of Inflation

YoY Employment change:

YoY employment change

Speed of consuming slack: yoy monthly:

Speed of consuming slack

Speed of consuming slack: quarterly:

Speed of consuming slack quarterly

Real consumption per Employee:

real consumption per employee 2

Will real wages ever rise faster than productivity?:

Productivity & Real Wages



Productivity against Effective Demand limit:

Prod & ED limit

Bottom of Initial Claims?:

Initial claims

Tracking inflation expectations:

Fisher effect?

M2 velocity still falling:

Measures of Inflation

All in one:

All in one

Double checking labor share with unit labor costs & inflation:

My Photo
Edward Lambert: Independent Researcher on Effective Demand. Graduate of Atlantic International University where independent research was developed.
Some links for economic analysis
Fed Views - San Francisco Fed, around 10th of each month.
Well's Fargo monthly - around 10th of each month
Well's Fargo weekly
Well's Fargo Interest rate report
Well's Fargo Economic indicators
T. Rowe Price weekly market wrap-up
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