August 2011, David Rosnick and Dean Baker

At the peak of both the stock and housing bubbles, there were extraordinary shifts in the statistical discrepancy between the national output and income accounts. The statistical discrepancy fell from its normal range of 0.5 – 1.0 percent of GDP to levels below -1.0 percent of GDP. The analysis in this paper suggests that this reversal was directly related to these bubbles, with the likely explanation that a portion of the capital gains from these bubbles being misclassified in national income accounts as ordinary income. If this is the case, then the drops in household saving during the bubbles and the subsequent rises following their collapse were even larger than the official data show.

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