Slowdown Part Two

   Negative territory.

   A second look at America's economic performance in the first quarter of this year showed a minus number for the second time since the Great Recession ended.
   The U.S. Commerce Department said GDP (Gross Domestic Product) decreased by 1.0 percent during the first three months of 2014. A first estimate indicated the economy barely moved -- it rose by 0.1 percent, compared to a growth rate of 2.6 percent in the fourth quarter and a jump of 4.1 percent in the autumn quarter.
   In the first quarter of 2011, GDP dropped by 1.3 percent.
   Meanwhile, prices continue to rise. Using the year 2009 as a base, government statistics show the GDP price index rose from 100 that year to 103.2 in 2011, to 105.0 in 2012, to 106.4 for all of last year and to 107.4 in the first quarter of 2014. The price index for personal consumption expenses rose to 104.0 in 2011 to a current level of 108.0.

   What does it mean? Supply (output) is declining even as prices rise. But as prices rise, demand will fall as consumers decide they can't afford to buy. Later, a drop in demand will drag down production, which means fewer jobs and lost wages, leading to even lower demand and less production. And the cycle continues. Sound familiar?
   Exception: The super-wealthy will remain immune from depressing production and even benefit from lower prices. It has happened before, during economic downturns in the Gilded Age of the late 19th Century and the Great Depression of the 1930s.
   Will it happen again? That will depend partly on whether the advocates of austerity have their way. They insist that hard times call for hard measures, and government must lead the way by saving more and spending less. Moreover, they extend this tactic to the wealthy, in the mistaken belief that tax cuts will somehow increase expenditures.
   They forget the Paradox of Thrift, which says the more people save and the less society spends, the worse things get. Tax cuts for the wealthy don't matter, since they already have more than enough for living expenses, and falling prices enable them to maintain their status at less cost. Benefits from tax cuts only enable them to stash more cash in savings accounts.
   Idle cash benefits no one.