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.