It’s Consumer Spending, Stupid

razorsharp
Thu, 27 Oct 2011 18:54:16 +0000

This guy is an idiot for two reasons. First, the definition of Gross Domestic Product is consumer spending plus business investment plus government spending plus net exports. Of course business investment affects economic growth because it is part of the definition of GDP.

Second, like most economists he assumes that economic growth means we are better off. It’s not true. GDP does not necessarily tell us whether there is wealth creation. For example, if government borrows 10 trillion dollars from future generations and spends it tomorrow, GDP goes off the chart. It looks like we are better off from government spending. In fact, there is no wealth being created. To the extent the government spending created GDP, the borrowing off set that growth when considered as part of wealth creation.

In short, government borrowing offsets the benefits of government spending.