GDP (mostly without numbers) and Superheros

GDP stands for Gross Domestic Product.  It's the most commonly-used measure of the size of the nation's economy.  To put it another way, GDP is the number that is most often used to describe the value of the country's labor income, wage earnings and business production, usually during the most recent reporting quarter of the year.

GDP and you and me

That's it.  That's all that it is.  Despite its wonky aura, GDP is not complicated.  The data-gathering and mathematical calculations are complicated, of course, but the basic concept of GDP is pretty straight-forward.

We are all a part of GDP.  What each of us is paid or otherwise earns in such a way that money changes hands becomes a part of the GDP measurements.  That new Ford truck that just drove by with the temporary license in the window was probably bought during the first quarter of the year, so the value of the buying transaction became a part of recent GDP.  Building it and delivering it to the dealer would have become a part of GDP in one or more quarters last year.

Paying for electricity, buying groceries, building a house or a skyscraper, selling financial or accounting advice and services, fixing a computer, buying a new computer, purchasing bullets to fight a war, making a purchase of new shoes, putting up a new warehouse. . .well, you get the idea, all of these things--and thousands more--are included in GDP.

News of the day

Today's top news story is that America's GDP seems to have grown during the first quarter of 2012, but at a slower rate than expected, and at a rate that was slower than was the growth during the last quarter of 2011.

I won't go into all the numbers.  These things are important, but they're boring.  The Bureau of Economic Analysis (yawn) does a real good job of pulling all of the GDP stuff together and then reporting on it.  Anybody can go to the BEA's web site and read what they have to say about GDP, its growth, and why the growth is slowing.  Keep something caffeinated handy.

According to the BEA, the slowing growth is due primarily to decreased spending by businesses on making things for other businesses to buy in the future; by businesses pulling back on new commercial construction and on purchasing new industrial equipment; and by reduced expenditures at all levels of government, especially by the Federal government.  The chatter in the news reports says that falling government spending--including a notable drop in defense spending--subtracted at least 1/2% of growth from the economy, leaving us with the reported 2.2% annual GDP growth rate.  (That's all the numbers that you will see here today. . .I promise!)

On the other hand, the positive and growing contributors to the GDP were primarily consumer-related, such as an increase in purchases related to residential housing.  It seems that people bought a bunch of iPads, too.  But much of this was the result of using savings.  This cannot continue in the long run; there's a need for increased earnings to fuel increased consumption.

Inquiring minds ask questions

So, what's behind all of these GDP figures?

Why did the American consumer make such a positive contribution to GDP growth?  My guess:  Probably because of improvements in employment expectations, and perhaps also because too many people have gone for too long without the housing that they desire, and now they are starting to go out and get it.

Why did business pull back the way that the GDP numbers show that it did?  Beats me.  Maybe business leaders are just a real cautious bunch of people.  Maybe there's some politics involved.  Perhaps there are other reasons.  (Did they get distracted by learning to use those new iPads?)  Probably, it's due to a combination of all of these factors.

Why was government a drag on GDP?  The answer to this one is easy:  we're seeing the effects of conservative fiscal austerity.

GDP growth -- looks like it's up to us

Government spending will continue to have a depressing effect on GDP growth.  That's inevitable, since the political cure du jour for the nation's debt level seems to be lowered government spending.  Unfortunately and ironically, as the GDP report shows, the resulting contraction in GDP growth is a real and tangible cost of fiscal austerity.  In other words, it costs money to save money in this way.

Perhaps America's business leaders--they should be ashamed of themselves--will stop being so parsimonious with that record amount of cash that they are sitting on--and have been sitting on for the last couple of years--and put it to good use by doing some hiring and creating and building and investing.  (I promised no more numbers, so let's just say that it is one big whopping mountain of cash money. . .anyway, you've heard the number before.)  Apple and other similarly-creative firms seem to be figuring out how to do this.

Admittedly, this is a generalization, and there are praise-worthy exceptions.  Nonetheless, in aggregate, leadership of the biggest American businesses is doing very little to productively employ their record amounts of cash wealth.  If they were doing significant things then that mountain wouldn't keep growing, and we would have a better national employment picture.

But, for the moment and the foreseeable future we are constrained by the inaction of overly-cautious business leaders.  Eventually, this will pass and vision will emerge and begin to take hold.  Maybe this will happen soon, but probably not for a while.  I hope for speed, but expect sloth.

In the meantime, then, let's do something helpful and give all the tax policy support possible to the millions and millions of every day consumers--namely, you and me and that guy behind the tree--and use it to encourage the typical American to do what comes naturally:  buy things.

That will mean more GDP, which will eventually mean more jobs, which will mean more consumer spending. . .take my word for it, or go back and click on the link for BEA and read the report (yawn) -- it all amounts to the same thing.

The wealthiest people don't need any more encouragement to buy things -- they're going to go out and buy what they want to, anyway.

But there are lots of not-so-wealthy people who would spend a little more if they were given a little extra encouragement. 

Looking for a Superhero

We're looking for a GDP Superhero.

Business--especially the really big corporate entities--always wants to play the role of economic Superhero.  That's where tremendous resources exist which, if deployed in a creative and energetic manner, can levitate America's economic growth rate.  The skills and experience exist to make this happen.

However, superheros don't just sit around idly examining their superpowers; they make use of them.  Except, that is, for those times when they are in the midst of some kind of super hissy-fit.  So it doesn't look like business is going to fill the role; at least, not soon.

How about government doing an audition for this?  No, not likely.  We're in the process right now of culturally and politically denying the possibility that government has any such talent, or even has the right to aspire to having the talent.

And now you know where that leaves us, don't you?  The Superhero has to be the ordinary, normal, typical American consumer.  The consumer who is overly-indebted--but not as badly as a few years ago--and who is under-employed--but also not by as much as before.

It's not an easy job being a Superhero.

On the other hand, anybody who has bet against the American consumer in the last 70 years or so has gotten squished.

Run government like a business -- it might surprise you

"Why don't we run the government like a business?"  That question is a persistent theme in American politics.

The best answer to the question is this:  Running government as a business is absurd and not possible in a democracy.  Businesses are inherently authoritarian -- the boss at the top runs the show; everybody else in the business follows orders from above or else is out of the company.  A democratically-accountable government is the inverse, and that's the way we like it.

However, there are some things that government can learn from business practices--both good and bad--and businesses can learn some things from government, too.

You might be surprised at what would happen if the American Federal government were to take a lesson from the wonderful, wild world of American business.

"Best Practices"--budgeting for operating expenses

Most businesses follow various "best practices" regarding their operating expenses.  Since today's politics, especially at the national level, are so consumed with governmental budgets and fiscal policies, it seems like a good place to start would be with a business "best practice" regarding operating expenses.

Let's say, for example, that a business has discovered that its expenses have grown faster than its revenues.  The business leadership then chooses a course of action from among these options:  (1) reduce expenses; (2) increase revenues; (3) do a combination of #1 and #2; or, (4) do nothing.  Most times, the choice is #3; in other words, economize on expenses immediately, and do something to increase business sales in the long run.

In reducing expenses, most businesses compare themselves with their peers and their competitors.  That's fairly easily done with governments, too.  In making expense reductions, the natural starting point is the biggest line item.

For the U.S. Government, the biggest line item is National Defense, which consumes almost 25 cents of every income tax dollar in revenue.  Check out this part of the White House web site to see the details.

Fun with numbers--you show me yours, I'll show you mine

So, if we have a national governmental expense problem in this country, it seems like a good place to start looking for corrective action would be with the National Defense part of the Federal budget.

Admittedly, the foregoing statement is usually labeled as a "left-wingy" thing to do, but remember that we got here by taking a purely business-like approach.  If there's an argument with that, I'd like to know what it is.

The business publication The Economist is a favorite source of information for me.  It's informative, detailed and sometimes dryly amusing.  Occasionally, I'll even find myself agreeing with their opinions and conclusions.  The cover story for the April 7 issue is called "China's military rise" and it includes a table describing the top ten military spending countries; here it is:


Wow!  The United States spends almost as much on its military as all of the other countries in the world combined.  Well, you've probably heard that before, so maybe it's not such a big surprise, but the fact is given considerable impact when it is presented in this manner.  By the way, it's not just The Economist saying this -- the attribution to IISS as the source refers to The International Institute for Strategic Studies.

Here's what the table doesn't tell us:  As a portion of the nation's Gross Domestic Product (GDP), military spending by the U.S. is almost 5%, while that of China--number two in the table above--is only about 1.5% of their GDP.  (The same article cites these approximate figures in another table, which is not included here because it is cluttered up with many other factoids like numbers of ships, planes, tanks, etc.)

In other words, if looked at in a business-like way, the United States spends about three and one-half dollars on its national budget military line-items every time that China spends about one dollar, in order to accomplish the same relative amounts of national economic--or business--output.

Here's the same thing in different words:  the GDP of the Unites States is about twice the size of China's GDP, but our military spending is about eight times as much.

Another point:  military spending by the U.S. represents more than 45% of the world's total such expenditures, but our GDP is only about 20% of the world's total GDP.

We're militarily-spending ourselves out of business

That's probably enough fun with numbers for now.  Here's the conclusion:  this much spending on the military amounts to a going-out-of-business strategy.

It is not economically-possible for the United States to continue its current level of military spending.  It's not desirable for any number of reasons, but that's a subject for a future writing.  This is what all those numbers tell us:  The US Federal Government has a really big military spending problem. 

National defense spending is necessary, but it's not necessary to spend so much.  No other country in the world even remotely approaches the military spending of the United States.  There's plenty of room for reducing the spending without jeopardizing national security.

Every tax dollar that is spent on the military is sucked away from funds that could otherwise be spent on research, development, infrastructure, healthcare, education, environmental protection, tax reduction or any number of other things that amount to investments in the national economy.

Investments produce future benefits in the form of economic growth, which means employment growth and business success.

The lack of investments reduces future opportunities for national growth.  A reduced amount of these investments leads to reduced employment and business activity.

The rest of the world seems to have learned this.  Now is the time for America to learn the same thing. 

Presidential electors ("Electoral College") are anti-democratic

The Constitution of the United States requires that the President be chosen by a small group of people called Electors -- not by popular vote.  In four presidential elections, the winning candidate--by virtue of receiving at least 270 electoral votes--has not been the candidate receiving the most popular votes from the electorate participating in the election.

I wrote about this Constitutional anachronism--and a worthy solution to the problem created by this method of selecting our President--in a posting on February 16 of this year.  The solution is called National Popular Vote.  You can read about it on their web site, or return to my prior posting.

Here's a reason why this should be done that ought to appeal equally to Democrats, Republicans, Independents and all colors and parts of the political spectrum:  the Electoral College is anti-democratic.  In fact, it is so outrageously anti-democratic that by the usual measures of voter representation in this country it would probably be unconstitutional if not for the fact that the U.S. Constitution sets up this system of presidential electors.

Simply put, it means this:  voters in a few small states have much more power in selecting the President of the United States than do the voters in every other state in the country.  That's a non-partisan statement.

This system is outrageously anti-democratic because it gives much more weight to the votes in some states than it does to the votes in other states.  It does this to Republican-leaning states ("red states") in the same way that it does it to Democratic-leaning states ("blue states").  For example, because of the Electoral College, each popular vote in Texas translates into only one-third as much electoral influence as does each popular vote in the District of Columbia.  Likewise, each popular vote in California carries only about one-half the electoral power as does each popular vote in Montana.

That ought to be enough to make voters see red--irrespective of their political affiliation--and demand that the system be changed.  Especially in these days of grass-roots popular politics like the Tea Party and the Occupy movements.

These are the states that are the most short-changed when it comes to the amount of influence that their voters have with the Presidential Electoral College:  California, Florida, Georgia, Illinois, Michigan, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Texas and Virginia.  In each of these states, an elector represents at least 600,000 residents.

The states that are disproportionally-powerful in the Electoral College are:  Alaska, Delaware, DC (not a state, but it has electoral votes), North Dakota, Rhode Island, South Dakota and Wyoming.  In each of these cases, an elector represents 300,000 or fewer people.  

The smaller the number of state residents represented by each elector, the greater is the value of each of that state's popular votes in the presidential election.  The larger the number represented by each elector, the weaker is the value of each of that state's popular votes in the presidential election.

Here's the analysis, with population data sourced from the US Census Bureau's Statistical Abstract, and with Presidential Elector data from the National Archives (the green shading shows states that have already adopted the National Popular Vote solution): 

The first three columns are self-explanatory.  The fourth column is the data in column 2 (population) divided by the data in column 3 (number of electors).  The fifth column, as well as the comments about the median value, serve as an illustration of how well the electoral power values are clustered around the median value.  As you can see, with only 18 states within 10% of the median value, there is a great deal of scattering.  That's more proof that the Electoral College is anti-democratic, if any more is needed.

The Presidential Elector system is a whacky way to elect the leader of the world's preeminent democracy.  The problem can be easily fixed by having a few more state legislatures adopt the National Popular Vote legislation.  It seems to me that people in some of the bigger states that are the most disenfranchised would jump on this.  That would be states like Florida, Georgia, Michigan, New York, North Carolina, Ohio, Pennsylvania, Texas and Virginia.

I hope that happens before we end up with another President who is elected with the most Electoral College votes but not the most popular votes.