There are lots of controversies surrounding, economic indicators, in place, and commonly used to measure the performance of economy. The most commonly used indicator, right now, is GDP (Gross Domestic Product). Gross Domestic Product estimates the net, end products and services produced by economy in a given period of time like in a quarter or in a year. Other common indicators in use are CPI (Consumer Price Index) which calculates prices and inflation, corporate profits, stock market performance, employment rates, income levels and consumer confidence. The problem is that the indicators currently in common use mostly reflect the demand side. Before World War II, the most commonly used indicators were supply side indicators like production.
The shift from supply side indicators to demand side indicators was mainly brought in by the influence of Keynesian theories. Keynesians stressed that economy is driven by net demand. Before that the classical view was that supply drives demand. The Keynesian views became insanely popular thanks to the extensive and strong patronization provided by big governments and corporate owned media. Supply side classical economics kept governments under control. Since the view was that supply which means production, and availability of products and services derives demand, there is not much that government can do about it. It meant that only private business activity can drive economy.
The Keynesian view maintained, since demand derives the economy, government can artificially pump it up by interventions like increasing supply of money or carrying out public works projects like road constructions. Logic, if any, was that the increased availability of money and jobs like road construction jobs can ramp up the demand. The problem is that to execute excessive public works projects government has to divert resources from private businesses and consumer activity to public works. It has to enforce direct and indirect taxes to carry out that activity which reduces the resources available for more productive economic activities.
To provide extra supply of money which must be printed, places more money in circulation, reducing its net value. Lowered value of money causes inflation or increases in price, cost of doing business and cost of living. The net effect is the devaluation of incomes and profits because what you earn values less now due to the devaluation of money. This is the most common and lethal form of indirect taxation coming out of Keynesian theories. This is how governments fund what they call as debt financing. This is how they steal away personal savings and the value from borrowed public debt.
To pump in more money into the fake economy and corporate welfare, fed must keep the interest rates low. It does this by borrowing back the government backed securities on very low interest rates. This generates an artificial demand for government backed securities and keeps the interest rates low while adding up to the national debt and budget deficits destined to be paid back by current and future generations of tax payers. This is truly a Ponzi scheme run by buying one debt with another or in private market terms by paying one investor with the money of another investor.
Like any Ponzi scheme this cannot go on forever. Ultimately the liabilities way surpass the new investments coming in, as the pool of investors and net money invested, grows. Finally it becomes impossible to pay all the liabilities merely with new investments. Unfortunately, Keynesian theorists, big governments, corporate media and ignorant public believe that this can go on forever. Back to back failures of such Ponzi schemes in many European economies did not open their eyes. Like the governments in those countries or may be like an immature teenager, they believe that this cannot happen to them.
So, they think, and make us believe, if the net demand is higher, real or artificial, the economy is doing better. In fact this is not the case. If this is true than any country in the world, for example, Ethiopia can become rich overnight by printing lots of money. The reason why we are the world’s largest and richest economy, and no one can get richer and bigger than us just by printing the money, is because we our net private expenditures, and hence the capacity to produce products and services, is much higher.
This did not come from governments, artificially, pumping money into the economy and into favorite corporations. It became from over two hundred years of unmatched ingenuity, entrepreneurship, creativity, inventions, risk taking in business ventures and hard work of American workers. Light bulbs, airplanes, railroads, cars, TV and computers created their own huge markets. It was the very high utility provided by these products which made us number one. Everyone realized that these products can significantly increase their efficiency levels, productivity and quality of life, in no time. These inventions attracted unbelievable amount in investments for purchases of raw materials, production and manufacturing, distribution, sales, jobs, and education and training.
This is what created GE, Microsoft, Apple, Walmart, IBM and Google. This also shows, without any doubt that economy is not only the calculation of net, end products. It involves a whole process starting from raw materials to final sales. No step, and people involved in any step are less important or negligible. Every single step generates value, jobs, money, incomes, revenues and profits. This is what derives net demand, not that demand derives the supply. If you produce, and your product or service is novel, competitive and appropriately priced you will create your own market and you will sell.
So, GDP is outdated. It was designed to measure our ability to come out of Great Depression and provide governments the ability to finance the war. It is still being used by governments to finance wars and welfare, and to grow bigger and bigger in size, authority and spending. We need a measure which measures the supply side of economy, at every step of production. The answer is GDE or Gross Domestic Expenditures. It tells us how much investment is being done and where, what is being produced, how much and with what value, payrolls, and business and consumer expenses.
Say Shop
