Saturday, December 03, 2005

GDP and GPI (Genuine Progress Indicator)? I

I visit and blog quit often on ThomHartman's blog with link above to what I want to talk about today. This will probably take more than one entry to cover all the theories in total. First I will address some of the issues of one commentator before the theory of GPI is brought up. To set the stage for this discussion, risingtide had brought up the fact that GDP had increased 4.2% annualized rate. Kate had said we were picking out single numbers and I talked about that GDP was important and that DJIA is not a very good indicator of the economy. I also made some good predictions on what direction the DJIA, Nasdaq and S&P would be the close on the next day. I got 4 out 4 predictions correct...
johnandersonUsing the GDP as some sort of measure of success is meaningless. It doesn't measure a societies standard of living anymore than the high numbers of a stock market measure the wealth of individuals in a society. Particularly when you've altered the way inflation is calculated to make it look like we don't have any and you haven't bothered to make any calculations for debt.

Just like any good Democrat, they have to add so many theories together that you end up fighting multiple layers of inconsistent ideas with no basis on facts. We will discuss the measures of GDP, but for now let me start with the second point. Stock market indices do not measure the wealth of some individuals. As some do not own stocks and own only tangible assets like real estate, and of course some do not own any stock. But over 50% of Americans own some stock according to Stock ownership is up.
While jon does not provide any calculations for debt also, debt is just one side of the ledger and for every debt there is a corresponding credit to someone. He also talks about the fact that inflation indicators have changed. I talked about such a fact recently on Bernanke goes before banking panel. As the chart on that post shows sometimes the core rate is above and sometimes below the standard CPI. So now those gas prices have fallen the CPI is above the Core CPI but of course we will not hear this.

GDP growth during Clinton's full eight years averaged 3.5 percent per year. Under Clinton the debt rose more slowly and GDP rose faster than under Bush. The result is that the ratio of debt to GDP went down an average of 3.89 percent per year during the Clinton years, but has gone up an average of 0.94 percent per year during the Bush years. That's bad.

Now that he has criticized the GDP he goes on to quote some statistics (no links) to show how the economy was better under Clinton than Bush. I will not go into the long discussion as to the fact that the economy was already headed for a serious recession and that 9-11 had such a huge effect on our economy that can not be easily dismissed.

GDP basically measures particular types of economic activity. Nothing about the GDP serves as a measure of standard of living. A typical example would be a country that exports 100 per cent of its production would end up with very a high GDP, but a very poor standard of living. Or, saying Bill Gates made a billion dollars so we are all now rich. It doesn't measure purchasing power.

Sorry again GDP measures will be later. But if we look at a country that exported 100 of its production would actually be in good shape. I guess in this example that food and water was secured by barter or self grown and gathered. These exports created excess cash reserves in the central bank or the banking system of foreign currencies. These large amounts of savings can be used for investment either domestically or internationally. Just as present savings allows greater consumption in the future this also will result in the standard of living of this nation will increase significantly. Sounds good, but I tend to be an optimist. You knew that the evil Bill Gates had to be brought up. I hope to talk later about inequality of income.

Bush's trade deficit has been produced an environment where U.S. exports have dipped dramatically relative to imports. Bad when you're borrowing money from your Communist Chinese pals.

The number of jobs in the economy increased 2.38 percent per year under Clinton, but it has decreased 0.17 percent per year under Bush even with $550 Billion in tax give always to his golfing buddies which was suppose to create 100 million new jobs. Median household income has fallen an average of 1.15 percent per year under Bush. It rose an average of 1.65 percent per year under Clinton.

Sorry I am still analyzing the International Transactions. Politicians often refer to the current account balance and talk about it being too high with somewhere over $600 billion dollars. But this is only about 5.5% of GDP. If this were the only number to look at, it would mean that US would only have to put aside 1% of GDP for 6 months to pay it off. Again he wants us to know that the economic numbers were better under Clinton, but of course we won't discuss the fact that congress controls the budget process and not the president.

That's enough for now.

Links of note:
News Release: U.S. International Transactions
The Decline in the U.S. Current-Account Balance Since 1991
Balance on Current Account
Global Current Account Imbalances: Hard Landing or Soft Landing1
Balance of Payments (International Transactions)

2 Comments:

Blogger hank_F_M said...

If I understand it correctly

If there is a high GDP there may or may not be a high average standard of living.

If there is a low GDP there can not be a high standard of living.

High GDP growth means you have room for improvement

Low GDP growth means things are about to get thight.

But I'm not an economist, what do I know.

12/04/2005 8:58 PM  
Blogger Ronald Rutherford said...

I agree with most of what you said.
I am working on the second installment and it will hopefully be done tonight.

Even with low GDP growth (what is low) at least it is not negative growth. That's when people start leaving their country.

12/05/2005 9:22 AM  

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