A Reasonable Argument Showing How We Are Poorer Than We Think As A Country
The following Fortune article makes some interesting claims about the US economy:
Accordingly, Arnott takes little solace in the observation that inflation-adjusted, per capita GDP has recovered to within just a few percent of its 2007 peak. While that statistic suggests the economy is recovering steadily, if a little less quickly than we’d like, Arnott contends that most of the GDP gains we have seen since 1998 are attributable to debt-financed spending, rather than real wealth creation.
We are, in a word, considerably poorer than we imagine – something politicians of all stripes should, but probably won’t, consider as they grapple with our massive deficit.
“GDP that stems from new debt — mainly deficit spending — is phony: it is debt-financed consumption, not prosperity,” Arnott writes. “Net of deficit spending, our prosperity is nearly unchanged from 1998, 13 years ago.”
The problem with so many of the “official numbers” of our economy are that they are miserably flawed in how they calculate what they’re supposedly calculating. I’ve discussed the ridiculous way the unemployment rate is calculated many times here. GDP is no different as stated by this author.
He goes on to give some suggestions on how the calculation could be improved:
One way to look at it is to strip out deficit-financed consumption – a method that leaves us with a result Arnott tabs structural GDP. Alternatively you can eliminate the government spending component of GDP, which yields what he calls private sector GDP.
Either way, Arnott estimates, true, wealth-generating U.S. output is at 1998 levels.
While the solution to that problem surely lies in more responsible policy – lower spending, a less ridiculous tax code — Arnott says it’s imperative we start using more meaningful economic statistics, lest politicians miss the message S&P tried to send this week.
If we continue to focus on GDP, while ignoring (and even facilitating) the decay of our Structural GDP and our Private Sector GDP, we’ll continue to borrow and spend, mortgaging our nation’s future. The worst case result could include the collapse of the purchasing power of the dollar, the demise of the dollar as the world’s reserve currency, the dismantling of the middle class, and a flight of global capital away from dollar-based stocks and bonds.
Even Democrats and Republicans can probably agree, with only a few hundred pages of riders and stipulations, that that is an outcome best avoided.
Kevin, good stuff. I found my way over here via Saturday Down South. I'll be checking in more often.
GDP can be determined in three ways, all of which should give the same result. They are the product approach, the income approach, and the expenditure approach.
I have a web site where I research penny stocks and stocks under five dollars . I have many years of experience with these type of stocks. If theirs anyone thats interested in these type of stocks you can check out my web site by just clicking my name. I would like to comment about the previous post everything that was said is totally true much of the economic growth that has taken place over the last twenty years has been fueled by debt. I would never invest in an insurance company a bank or finanical services company because I don't consider them to be real businesses. All an insurance company does is recycle money you pay a premium to your insurance company and someone else on the other end gets paid for a claim submited. Their is no real product or service being produced just money being moved around. And what does everybody want their children to do after they go to collage that is if they go to collage sit at a desk in front of a computer all day long and make fifty thousand dollars + on a yearly basis. It really is a phony world out their.
It’s spooky how clever some ppl are. Tanhks!
I totally agree with you about "the ridiculous tax code" you accused when speaking about this country's vital problems. laws (and the folks who wrote them).
The fact that companies that can afford to hire the best tax experts pay vastly lower taxes than companies and people that can't it's a direct result of an absurdly complicated tax code Those who are thinking about funding a business, no matter how small, need to hire highly compensated experts to figure it out. That's why some folks are advocating abolishing our current corporate tax and personal tax codes in favor of implementing a simple consumption tax.
Leave your response!
Most Controversial
Inflation Watch
It\'s The Economy, Stupid
Resources
Blog Roll
Money Under 30
Amateur Asset Allocator
Early Retirement Blog
Financial Planning
Ads
Disclaimer
© Copyright 20s Money 2007-2012. All rights reserved.
Privacy Policy | Financial Freedom
Featured Resources
Most Viewed