In the video I posted below about China essentially building a city that nobody is living in, the reporter kept emphasizing the importance of GDP. That the government wanted to boost "GDP." However, given this "stimulus" plan of Ordos as well as the "stimulus plan" here in the US to boost GDP, I think it's high time we have a simple economics lesson in GDP.
Understand the goal of economics is NOT to increase GDP, but rather to increase standards of living. We simply USE GDP as a measure of all the goods and services produced within an economy, ASSUMING those goods and services when consumed help increase our standard of living. That by eating the grapes we produce and watching the movies we produce, we get utility from that, enjoyment from it, and therefore we enjoy our lives more, thus increased standards of living.
This is a logical assumption in that typically, TYPICALLY, we produce what we want to consume. We produce things that are only going to benefit us. Nobody produces ebola for consumption on account that why would we? Nobody produces styrafoam dogs. Nor do we make our roads out of cake. It not only would not benefit us, it just plain doesn't make sense.
However, this assumes an INCREDIBLY important assumption about how we go and produce things. We ASSUME that the free market is going to be in charge of what is produced. We assume that a free people, in control of their own money, is going to decide how many Big Macs we should make, how many I-Pods we should produce and how much sushi we should make. But what if this assumption is faulty?
The reason why it is faulty is the progressively less and less money is being spent by the people. A higher and higher percentage of our economy is being spent by the government. Going from essentially 3% of GDP in 1900 to 46% today.
Now the reason I bring this up is because our stimulus here in the US is much like it is in Ordos. The government is spending money to help boost the economy. And sure, yes, because of the formula;
GDP = Private Consumption + Government SPending + Investment +/-Trade Balance
it is a mathematical fact that these government spending plans will increase GDP, however they won't increase standards of living simply because NO UTILITY IS BEING DERIVED FROM IT.
For example, enroute to one of my many dance classes, I drive through a small town that had its entire main street redone with Obama's stimulus plan. Before the stimulus plan I drove through the town just fine. The street lights worked just fine. The parking was just fine. People were talking on the sidewalks just fine and the road was in fine shape.
However AFTER IT WAS REDONE WITH YOUR TAX MONEY, GUESS WHAT!!!
NO
DIFFERENCE
IN
MY
DRIVING
EXPERIENCE
WHATSOEVER
NOTHING HAD CHANGED. The ONLY thing that changed was the type of concrete used (oh, and there was a daily traffic jam for 4 months in this small town)
In otherwords the American tax payer paid millions of dollars for the "honor" of boosting GDP.
Standards of living did not go up.
The utility derived from driving on this road did not go up.
We just inconvenienced everybody who drove through this town for 4 months AND indebted the American people several million dollars more.
This is the lesson that must be learned about economics. Economics has NOTHING to do with GDP. Sure, great, wonderful, GDP is positive according to the BEA. "Hurray, the recession is over!!! Warm fuzzies for everyone!!! Hurray!"
But your lives have not improved simply because the money was wasted.
This then behooves a very important question;
WHO SHOULD BE IN CHARGE OF SPENDING THE MONEY?
a. A government bureaucracy headed up by one president and 535 congressional members, the VAST majority of which have never had to work a day in their lives and have nothing in common with the average American
or
b. 300 million individuals who are acutely aware of their own personal financial situation
This is such a simple question, I'm actually pissed off I have to write about this, because apparently a majority of people in America can't answer this question correctly.
Obviously the individual, who is more in tuned with their own personal finances, is going to make better use of that money than a centralized government. This not only stands to reason, but history, with the collapse of the Soviety Union, the eastern bloc, Cuba and now Venezuela, provides us the emprical evidence as well.
Heck, I would even be willing to meet leftists half way on this one. Fine, go ahead and indebt the nation. Fine, go ahead and do this wealth transfer from future generations to today's generations. Just don't put the government in charge of spending the money. Instead, just take the $2 trillion in stimulus money an cut every worker in America a roughly $15,000 check. That money would then not just show up in GDP (thereby satiating bureaucrats' idiotic and pointless goal of boosting a now-meaningless number), but the money in each individual's hand would be better spent, thereby ALSO BOOSTING UTILITY AND STANDARDS OF LIVING!
But no, no. We have to send our money...well...not really "our" money...our children's money to the great Obama and Pelosi and Reid and have them fix roads that just don't need fixing. Repair bridges that don't need repairing. And buy art that doesn't need buying. Because, afterall, that will boost GDP!
