Common-sense economics starts with understanding our economy.
Gross domestic product is simply the sum of four numbers -- consumer spending, government spending, investment (residential and commercial construction) and balance of trade.
72 percent of the $15 trillion GDP is consumer spending. Balance of trade is a substantial negative 6 percent drag on GDP. Every dollar spent by government is positive to GDP, providing it is not spent on imported goods or services. Every dollar borrowed by government has a negative impact on GDP (paying interest on debt). Tax cuts increase consumer spending, a positive impact, but virtually eliminated if spent on imported goods or services The government debt-financed stimulus of $400 billion a year (2009-2010) had a positive impact on GDP. Private debt-financed residential construction growth peaked in 2005 ($800 billion), declining to $300 billion in 2011. This negated the stimulus' growth impact on GDP. Outsourcing manufacturing, providing consumers lower-cost imported goods, subtracts from GDP as it increases our negative balance of trade.
Reduce our negative balance of trade at the same rate we cut government spending and the impact on GDP is zero.
Our economy for 30-plus years has become addicted to debt, government and private. We have propped up our GDP with debt as we outsourced a fundamental need for consumer spending -- good-paying manufacturing jobs. Reducing government spending and not addressing the balance of trade will make this issue clearer.
George Stuart
Bluffton
