Listening to the port deal on WDEL’s Ms “Alberta” Mascitti’s show and upon reading Cassandra’s piece in Delaware Liberal, and having arguments on conservative blogs over the problems of our economy, it has become apparent that not too many people who throw out their opinions, know what the economy is…

If we all knew what made up the economy, perhaps our arguments would be on the same topic.

Here is how we comprise and determine what our economy is. We use the GDP.

Once one understands what is a GDP, then one can more readily understand what is needed to do, or what we should definitely, not do….

GDP = C + I + G + (X – I)

GDP = CONSUMPTION + INVESTMENT + GOVERNMENT + (SUM OF EXPORTS MINUS IMPORTS)

CONSUMPTION: Examples include food, rent, jewelry, gasoline, and medical expenses but does not include the purchase of new housing. Consumption consists of private (household final consumption expenditure) in the economy. These personal expenditures fall under one of the following categories: durable goods, non-durable goods, and services.

INVESTMENT: Examples include business construction of a new mine, purchase of software, or purchase of machinery and equipment for a factory. Spending by households (not government) on new houses is also included in Investment. Contrary to popular use of the word, as when one speaks of his investments, investments here do not include financial purchases like buying stock or bond in a company. Those are counted as savings and are completely out of the GDP calculation.

GOVERNMENT: . It includes salaries of public servants, purchase of weapons for the military, and any investment expenditure by a government. IT is the sum of government expenditures on final goods and services. It does not include any transfer payments, such as social security or unemployment benefits.

EXPORTS MINUS IMPORTS: It includes our balance of trade. It takes what you export or send out of the country and compares that to what gets imported and brought into the country. If you export more than you import, then you spending less then you are making and getting richer. This becomes a contribution to your GDP. But, once you import more than you export, you are spending more than you are making, and it becomes a negative drag upon your GDP.

There you have it.

Here are the myths that facts dispel. Personal savings have not effect upon the GDP. If you spend all you make and save nothing, you are better for the economy than those putting your money into CD’s or stocks.

The fluctuations of the stock market have no effect upon the economy, unless it is because of a psychological secondary influence causing more or less confidence and more or less spending in the categories listed above which do matter.

“Cutting wasteful Governmental spending” takes out a big chunk out of the economy. One should argue that instead we need more “wasteful governmental spending” to get us out of our recessional slump. Obviously we should remove the adjective “wasteful” from that equation,

It is possible a country can import its entire wealth away. If all ones income is spent, one has a zero balance.

Higher Taxes are good. They take money out of savings and put it into Government which benefits the economy. They spur the transfer of assets out of savings where they are taxed, into Investment, where they are not.

Cutting back on Government without replacing those cuts with either more investment, more consumption, or a positive trade imbalance is very, very negative.

Cutting back on government, creates less consumption. Less consumption lowers demand, and less demand creates less investment.

You cannot grow investment by cutting back on government. But you can grow investment, by growing government…. This idea of making government smaller is very bad for the economy and is exactly why since 2010 and the Tea Party, we haven’t had rapid growth…

The best way to jump start the economy is to move money in savings over to investment. Investment causes consumption to increase, investment to increase, and if government stays the same, it’s percentage of the GDP shrinks….

Moving money from savings to investment in no way deletes a person’s wealth.That person’s wealth the same; it is just counted in a different form.

Higher taxes achieve that quickly.

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