Many moving parts to improving economy

info@islandpacket.comMarch 18, 2013 

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


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