Considering that it has only been a week since Black Friday started the shopping season for this year’s commercialized ChristmaHanuKwanzaakkhah spectacular, this Economics 101 video from the Center for Freedom and Prosperity is a great primer on the relationship between consumption and GDP.
Traditionally, force-fed stimulus and presidential invitations to shop, Americans have been led to believe that consumer spending causes growth. In part by looking into the distinction between Gross Domestic Product (GDP) and Gross Domestic Income (GDI), the video makes the case for the reality that it is actually the other way around.
It may seem pedestrian to some, but it never hurts to reinforce the basics of economics. Perhaps my favorite quote from the video is this:
It is possible to temporarily increase overall American consumption if we are willing to surrender some of our future income in interest payments to foreign lenders. That’s not a very wise idea, unless you’re one of those people who think it’s smart to use your retirement fund to finance a trip to Vegas.
It seems as though, at the close of every quarter leading up to the recent election, the press would go wild with positive GDP numbers. First, I found it interesting how the same media folks would trumpet the positive numbers but would virtually ignore the numbers being readjusted downwards later. Second, it makes me wonder just how much of the GDP numbers were artificially propped up because of our reliance on foreign debt.
The takeaway here is that the focus should be on expanding the GDI, and letting the expansion of the GDI in turn expand the GDP. That, as you can see in the video, is done by acting to increase corporate profits, employee compensation and the like, and the proper actions to take in order to do that is exactly what we’re NOT seeing from this lame duck Congress which, of course, just yesterday voted to temporarily extend the Bush era tax cuts for middle class Americans while raising taxes on the job creators by allowing the tax cuts on the wealthier Americans to sunset.