In all that is economics, and actually, all that is in life, the only thing that matters is "utility."
What is "utility" you ask?
Well it's a word that economists (poorly) use to describe the benefits people get from consuming or using goods and services. If it were up to me I would replace "utility" with the word "enjoyment" in every economics textbook, but alas, I am not an academian.
Regardless, the point about utility (or enjoyment) is that, that is what life is all about. Enjoying yourself and living life. Extending your life as long as possible and enjoying a high of a standard of living as you possibly can.
Now, there are only two things (outside friends, family and loved ones) that can provide you enjoyment in an economic sense.
Goods and services.
Goods in the form of ice cream,motorcycles, dachshunds and martinis, etc.
Services in the form of massages, surgery, meal preparation, and so forth.
And that REALLY is all you need to know in order to understand economics. Economics is NOT about money or business or commerce. It is (again) about "stuff" and fun. So whichever country produces the most stuff literally does win because it is stuff and services that provide us joy, not the paper money that we use to buy the stuff.
Now where we run into trouble is how economists measure the amount of "stuff" we produce in this or any other economy - Gross Domestic Product or "GDP."
GDP is technically defined as "all the goods and services produced within a nation's border within one year." And so if GDP goes up, hey, we must be producing more stuff!
No so fast, buckaroo.
First there is the thing called the "Broken Window Fallacy." If you break a window, it must be repaired. Out comes the window repairman and he replaces your window.
Did this increase your standards of living?
No, it merely MAINTAINED your standards of living.
BUT because of how we account or measure GDP that $100 you spend on the window repairman goes into the GDP total. In short, yes GDP went up, but our standards of living did not.
Now this "Broken Window Fallacy" is actually accounted for. Windows will break, machines will wear out, cars break down, and so to account for the natural "wear and tear" that will occur in this or any other economy we come up with "Net Domestic Product" - an estimate as to how much real NEW production occurs, not replacement parts and repairs. But even NDP does not account for other discrepancies between GDP and our actual standards of living.
Second, government spending.
Government spending (state and local) now accounts for 40% GDP and some of that is considered GDP. Yes, a lot of it is deficit spending, but we'll leave that out of it for now. The primary point is that government spending has been increasing and quite dramatically since 1900 when it only accounted for about 3% of GDP (below is just the federal share, AND it does not include Barack Obama's 10% jump in his 3.5 years in office).
The question is what do we get out of that government spending?
The truth is, nothing.
Yes, government spending is accounted for in the national income accounts, and yes it increases GDP, but the problem with government spending is it's nowhere near as efficient and productive as private spending. The government (as I'm sure you're aware of) pisses away money worse than an Edina trophy wife with a horse farm. The $800 spent on a hammer for the Pentagon back in the 80's is a perfect example. Or, for you lovely liberals, your lovely $500 million in taxpayer money spent on Solyndra. Or (once again for you lovely liberals) on a state level where we spend the equivalent of two houses per child on "teachers" as they fake educating the children.
Did we as a country cumulatively have our standards of living raised by $800 for that hammer? Did we as a country cumulatively enjoy $500 million worth of solar panels and energy savings from Solyndra? Did we as a country cumulatively have our standards of living raised by $200,000 for acting like we were educating that Detroit child-turned-gang-banger?
Of course not.
But from an accounting standpoint that money was still considered GDP and an increase in our standards of living. This calls into question the ENTIRE government spending component of GDP. And while there's no way to accurately measure just how much of government spending is wasted, I would estimate today nearly 85% of it is.
If you think we're done whittling away at your standard of living, sorry to say, we're not. There's one more flaw in GDP that has been gnawing at the back of my mind - just how efficient is the private sector? Oh, rip apart the public sector all we want, it ain't like the private sector is the epitome of efficiency.
And this is what I call the "Spinning Wheels Economy."
I happened upon this as I realized that in my now approaching 20 year banking career, the last 10 years, ESPECIALLY the last 5 have been spent cleaning up other people's mistakes. My role as a credit analyst in theory should have benefited society by way of me assessing risk precisely and accurately. You invest your money at a bank or a real estate company, I analyze and to the best of my ability calculate the risk, potential return and likelihood of repayment, to get you a higher rate of return.
But in the past 5 years I have spent no more than maybe, MAYBE a full 80 hours doing that.
Instead I've been spending my time cleaning up all the crap loans idiotic bankers made before me. Dealing with problem loans where the client hasn't paid us back. Dealing with impaired collateral because the galactically retarded branch president decided to hold onto it "until the real estate market improved." And dealing with spineless pansies who can get the gall to foreclose and repossess on the losers of society. I did nothing anywhere near what my original job was intended to be. Oh, and don't get me started about all the government regulatory compliance that does nothing but piss away the shareholder's capital.
But, did I get paid a salary during that time?
Was that accounted for in GDP?
Did I produce one damn thing if value during the past decade?
Not a dime.
It then further dawned on me that I am probably not alone. The current economic environment in the US is just ripe for millions of private sector people getting paid who essentially produce nothing of real value.
UNDERemployment is around 20-25%, nobody is working anywhere near their potential.
Businesses are currently managed by (in my humble opinion) the most incompetent, impotent, ineffectual, inefficient, cronyistic, nepotistic retarded rent-seekers in the history of the US.
And the overall quality and caliber of the average US person, who now populates both the rank and officer classes of the private sector, has deteriorated considerably since the 1940's.
All of which means we clock in, but there's no real, genuine economic production.
If I had to estimate it, I'd say that right now the average private sector employee is really only productive for 25% of his or her time while on the job. And this says NOTHING about management arming them with the optimal, let alone, adequate combination of training, equipment and leadership. Of course my experiences are biased. I worked in the most corrupted, inefficient industry in the country - banking. But I'm sure those of you in other industries could estimate your "efficiency loss."
Making an attempt to back out my bias, I'd still estimate given the average quality of the average American today, you'll looking at a loss of at least half the efforts in the private sector.
Now admittedly, these are all estimates. And I would also contend these percentages of lost efficiency would be lower if we went back in time which Americans were more responsible. But if we take some measure of accounting for
1. this deterioration,
3. government spending loss of efficiency
4. private sector loss of efficiency
our "real" "Real Net Domestic Product" is nowhere near what government economists and databases tell us and perhaps more accurately reflect our own experiences and observations. Admittedly a very presumptuous and pessimistic-assumptions-made chart, but here is what I came up with:
In short standards of living haven't really increased all that much since 1967. Oh yes, I know, we have cute little gadgets. And yes, I know, our cars now have power windows. But this trend does more or less correlate with what I've experienced. I'm better off than I was in 1980, but not by much.
Now, again, there are admittedly a lot of assumptions that went into this chart:
1. I assumed government spending was effective at a 50% rate, dropping to 15% today.
2. I assumed the private sector was effective at 80%, dropping to 35% today.
3. This does not account for any additional benefit technology may have provided in terms of increasing the quality of our goods and services.
But I am more curious if this correlates with what you have experienced in terms of standards of living and life in the past roughly 40 years instead of the BLS and BEA TELLING you what you've experienced. And keep in mind the above chart DOES NOT account for all the money we've borrowed from foreign countries and spent on foreign made goods. This is AMERICAN made products and AMERICAN consumption sans any subsidies from our foreign friends.