Sunday, May 12, 2013
The Reason for Desiring Economic Growth
Checking my blog stats the other day, I noticed that one of the "traffic sources" was a google search for the reason for desiring economic growth is to...
Now, one of the things that's clear in my mind is why we might desire economic growth. So I thought I'd be explicit about it.
Lots of people complain that GDP is not a good number for various reasons. That may be. But it's the number we have. Making the number better is off-topic at the moment.
So what is GDP anyway? It's a measure of what we produce in a year. It's a way to measure the "size" of the economy. And we want it bigger because...
Nope. Not yet.
GDP = Gross Domestic Product
"Gross" = all of it. ("Gross" in this context does NOT mean "yucky".)
"Domestic" = within our country.
"Product" = the stuff we produce.
GDP is a measure of all of the stuff we produce within our country. In a year.
Now I can tell you why it's important. It's important because the total value of what we produce in a year is equal to the total value of our income in a year. GDP = GDI, where the "P" is "Product" and the "I" is "Income".
So, why do we want more economic growth? Because we want more income.
You do want more income, don't you?
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4 comments:
Something that needs to be added though is that the production needs to be SOLD.
Warren Mosler talks about GDP being SALES not production. Focusing overly on production is too supply side I think. Sales is where the action happens....the demand side.
You cant sell anything to anyone who doesnt have money or someone who is still paying back their previous consumption from borrowing.
Yeah. The economy is transaction.
But maybe they focus on production because ... I'm thinking of several things I read that distinguish between buying a house and buying a *new* house. These readings say that buying (or perhaps building) the new house adds to the economy. They say the transfer of an existing house is nonproductive, like the transfer of financial assets.
Maybe they focus on production because of that.
Happy mother's day
Nicely put by JW Mason:
"It is more or less always true, that if you ask why is output higher than it was last period, the answer is that someone decided to increase their expenditure."
" buying (or perhaps building) the new house adds to the economy. They say the transfer of an existing house is nonproductive, like the transfer of financial assets.
Maybe they focus on production because of that."
I understand it that way as well. Yet buying things on secondary markets can sure lead to lots of employment. Look at our trillions spent on already created financial products and the brokers employed to peddle them. Yes we want new production as well but lots of stuff happens outside of our GDP that can keep people employed, happy and able to provide for a family. But it can only add to employment if expenditures are increased
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