This page has been archived and commenting is disabled.
Guest Post: How Government Spending Impoverished Us All
Submitted by The World Complex
How Government Spending Impoverished Us All
A few weeks ago we discussed the growth of the "virtual" economy. The argument was that metal consumption (in particular copper and zinc) grew in accordance with global GDP until the mid '70's, after which metal consumption grew markedly more slowly than did global GDP. Our thesis was that global GDP (the "official" economy) has at least partially increased by management of perceptions and addition of a lot of economic "activity" which does not increase wealth.
It has troubled me in the past that I could file lawsuits against present and past associates, who in turn might file suits against me. In the very best scenario all that would happen is a redistribution of existing wealth, yet all the legal fees would be additive to GDP. Yet no wealth would be created (except from the lawyers' perspective) and a great deal would be lost. It has always seemed to me that economic activity of this type forms a component of GDP the magnitude of which is unknown.
A reader questioned whether the reduction in growth of consumption of these metals could be due to their replacement by less expensive alternatives. Although I believe that there may be a slight effect, as seen in relative increases in aluminum and stainless steel--I discount most of this because copper, for many of its applications, is very difficult to replace. It is why the price of Dr. Copper is thought to be such a good leading indicator for the economy.
Today we add nickel and steel to our graph, but instead of plotting them against GDP, we plot the ratio of their consumption to global GDP (all scaled to 1 at far left, in 1949).
What we are actually looking at is the relative growth in the amount of metal consumed in comparison to the growth of GDP. If the curve is level, then metal consumption is growing (or shrinking) at the same rate as global GDP. If the curve rises towards the right, then metal consumption is growing faster than global GDP. If the curve descends towards the right, then metal consumption is growing more slowly (or shrinking faster) than GDP.
We see clearly that the consumption of metals has not kept pace with GDP, with most of the relative decline happening after 1975.
At the World Complex, I view metal consumption as being a better indicator of economic activity than the officially reported GDP. Perhaps I should say I trust the metal consumption numbers more, as I suspect they are harder to fake. In any case, metal consumption usually involves making something, which is frequently accretive to wealth (except in the case of bombs, et al.).
The decline in metal consumption is a direct measure of the decline of real wealth. Yes, real wealth is not dollars, it is oil; it is copper; it steel. As long as the per capita availability of these resources is increasing, our wealth is increasing. I have argued in the past that the suppression management of commodity prices is largely responsible for comparatively recent declines in their per capita availability.
Has the definition of GDP changed over the last fifty years? According to wiki, it is defined as follows:
GDP = C + I + G + (X - M)
where C is private consumption, I is gross investment, G is government spending, X is exports, and M is imports. There hasn't been any change in the definition over the past sixty years. But here is something that has changed.
US Federal spending compared to GDP. The magnitude of spending really takes off after about 1970.
Now this is true for the US, but probably mirrored to some extent in other countries as well.
The problem is not a change in the way the GDP is defined--the problem is in the definition of GDP itself. If we want GDP to be a measure of wealth then we need to remove that G term--or part of it.
A tonne of copper can't be consumed until it is produced. But the government can spend money that it doesn't have. So government spending can't be part of what was produced by a country unless it has been covered by taxation--then at least the wealth was produced prior to consumption. If the spending is empowered by debt creation, then no production was involved.
It's like measuring the wealth of a family by counting the money they spend, with no regard as to whether they are piling up credit card debt.
The miscalculation of GDP is useful to TPTB because it creates an illusion that we are wealthier than we really are. Ph.D. economists can't perceive this truth if they want to keep their funding.
Perhaps in addition to occupying Wall Street, protesters should give some thought to occupying the White House, Congress, and the Senate.
»
- 19508 reads
- Printer-friendly version
- Send to friend
- advertisements -
C3X Portfolio Performance
http://capital3x.com/think-tank/performance-october-15/
Any title/piece/etc., that labels either government or corporations (but not both) as THE problem is myopic, at best.
Hey Tyler - enjoyed this piece and after a quick skim on author's web site -- found this post ..... http://worldcomplex.blogspot.com/2011/09/poor-gordon-brown.html
Hey - dare you to post this and start yet another pissing contest with "Globe and Mail" ... a GREAT artilce if you are CANADIAN and feeling just a bit too smug .... took me down a notch or two
Hope you add 'worldcomplex' to your list of read sites
Here's an example of flawed GDP numbers - the banking and financial sector used to be under 10% of GDP --
Now it's around 40% - while creating No Real Wealth.......
So I'd argue if we knocked off the 30% it would be a. More accurate GDP number
Meaning true GDP of 10 to 12 trillion.
But if we want to know why the Gov spends too much - 1000+ foreign military bases, cia operations in over 120 countries last year, 6+ wars now? We just sent troops into uganda, + pakistan, afganistan, iraq, somolia, libya --- All that killing doesn't come cheap.
good morning argentina. Here's some burgess, dont like it?....... die, if you do, well that you can die later......hahahaha....putz
Grandpa: Well let me tell you something now, Johnny. Last Thursday, I turned 95 years old. And I never exercised a day in my life. Every morning, I wake up, and I smoke a cigarette. And then I eat five strips of bacon. And for lunch, I eat a bacon sandwich. And for a midday snack?
John: Bacon.
Grandpa: Bacon! A whole damn plate! And I usually drink my dinner. Now according to all of them flat-belly experts, I should've took a dirt nap like thirty years ago. But each year comes and goes, and I'm still here. Ha! And they keep dyin'. You know? Sometimes I wonder if God forgot about me. Just goes to show you, huh?
John: What?
Grandpa: Huh?
John: Goes to show you what?
Grandpa: Well it just goes... what the hell are you talkin' about?
John: Well you said you drink beer, you eat bacon and you smoke cigarettes, and you outlive most of the experts.
Grandpa: Yeah?
John: I thought maybe there was a moral.
Grandpa: No, there ain't no moral. I just like that story. That's all. Like that story.
"Perhaps in addition to occupying Wall Street, protesters should give some thought to occupying the White House, Congress, and the Senate."
A'fucking'men to that - NOTHING will change, for the better at least, until the enablers and whores in Washington are dealt with. Yet,unless I'm mistaken, most of these OWS folks just want to put more power there?
I don't hear their chants, in Chicago anyways, as having anything to do with ending the fed, getting back to sound money, or going after the enablers and authors of the greed culture in DC.
The old saw about the military had to come because the belief in inherent moral superiority of many people who exist because of the heavy lifting of others. It comes from the moral bankruptcy of pacifism and the softness of the society that encourages intellectual self indulgence.
As to education, when your education system is based on trade unionists, then what you get is education spending that would embarrass the most ardent military industrialist. At least some of the weapons work, as opposed to the collectivist trade union indoctrination system that is called education that spits out malfunctioning unthinking rote spewing high self esteemed infantalized dependents.
Electricians, plumbers, machinist, and mechanics are in short supply because The morally superior believe such work is less than menial and closed all of the taxpayer funded trade schools.
As to wealth, lawyers and traders/fininacialist pass around pieces of paper and create no wealth.
As to metal consumption you have to add in oil consumption that makes plastics, and recognize that for the equivalent car, building, train, or ship, the weight or amount of metals have been reduced as the materials have been engineered that has created real wealth. That would be real engineering versus the use of the word engineer with the word financial, which signifies illusions and fraud.
The consumption of consumer electronics with their dependence on rrare earths, semi-precious and precious metal, as well as plastics, would indicate the consumption that needs to be considered. As well as fiber that has replaced copper as the choice for communications.
The hardware/software argument continues because of the myth of the stupid box or pipe and smart software. The hardware has become far more complex and the software being a series of functional instructions for a result or results that has become far more powerful because of the hardware has created tremendous real wealth by saving time, creatin new solutions and creating new classes of products. Much of the hardware-software discussion misses the facts of the complex nature of speed and transmission rates.
Growth that considers government as a net positive contribution is a terrible measurement. Government activity has to always be deducted because it is a drain and diverts capital.
where's my government cheese ????
Think spending was misspelled. It should be theft.
Hahahahahahahahahaha!