In poltics it happens across party lines.
(In universties Keynesian type economists are probably the most flagrant violators.)
Point being if savings etc. had remained on track AND the GDP (spending) had grown by $114.75b that would be a real $114.75b economic growth. Reducing savings, but increasing spending us mot IMO real economic growth. It us just a switch from one category to another.
But far too often. Keynesian economists, and politicians of all stripes ignore that. In fact Keynesian policies are designed specifically to reduce savings and increase the tendency to borrow and spend.
Correct. Reducing savings to increase GDP us not the same as increasing GDP and keeping savings the same. It is not ‘ceteris paribus.’
As an economicconservative this is important.
Ceteris Paribus
What is ‘Ceteris Paribus’
The Latin phrase ceteris paribus – literally, “holding other things constant” – is commonly translated as “all else being equal.” A dominant assumption in mainstream economic thinking, it acts as a shorthand indication of the effect of one economic variable on another, provided all other variables remain the same. In the fields of economics and finance, What Does Ceteris Paribus Mean in Economics?
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QUESTION:
If this quarter’s GDP (using only the formula you regurgitated) is $114.75 b greater than last quarter’s GDP, did the economy grow?
CORRECT ANSWER:
No. Growth in GDP is only one measure of the economy, (albeit a primary one), nonetheless GDP growth = economic growth if and only if we make the Ceteris Paribus assumption.
GDP growth indicates economic growth if and only if all other factors remain equal. In the 1Q of 2018 $114.75 b in GDP growth was accompanied by $140 b+ in diminished savings.
As this article in the New Yorker below) points out over the yeard more than a hundred standards have been proposed, from across the political spectrum, as alternatives to G.D.P. as our primary economic indicator.
I am not suggesting any particular one of them. I am simply advocating that we recognize GDP growth that comes from shrinking savings deposits is much much different from GDP growth that occurs organically, when savings deposits remain unchanged.(Such as when we become 1% better at producing something thereby beating out foreign competition.)
Note also the previous thread stating that 40% of American adults could not cover a $400 emergency such as a car fan belt breaking, or missing a few days of work due to health.
I had been hoping to continue this conversation. My point being that there are a number of ways the GDP can grow $144.75 b in a single quarter. In this case it appears to have happened because ~$143 b that would have savings accounts was instead spent.
The difference is that saved $ tends to go to capital expenditures, spent money tends to be used for consumption, (opening a factory vs. buying a sandwich.)
Only until they spend it. Thus saving money increases net worth and capital assets in ways spending does not.
Certain recessions are caused by a sudden shift out of spending and into savings. While I am a fan of free markets, it at least makes sense that someone would advocate “stimulus” spending to fight a recession.
What we have now is stimulus spending in boom and stimulus spending in bust and stimulus spending in between.
But it increases their net worth only while it is saved and not spent. You understand that don’t you?
The US personal savings rate in 2017 was a paltry 2.4%, down from the 10-11% norm established 1960-1980.
Moreover, 40% of American adults csn’t come up with $400 in case of work absence, auto repair or other emergency.
Regardless of how quickly money changes hands how quickly, (the GDP measures money changing hands and nothing else) that is NOT economic health. It’s more comparable to anemia ir asthma than it is to health.)
This is has nothing to do with the topic being discussed which is the difference between a dollar spent and never saved and a dollar saved and subsequently spent. Answer: there is no difference.
